Correlation Between TMP Steel and STL Technology

Can any of the company-specific risk be diversified away by investing in both TMP Steel and STL Technology at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining TMP Steel and STL Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TMP Steel and STL Technology Co, you can compare the effects of market volatilities on TMP Steel and STL Technology and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in TMP Steel with a short position of STL Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of TMP Steel and STL Technology.

Diversification Opportunities for TMP Steel and STL Technology

-0.66

Correlation Coefficient

TMP Steel  STL Technology

Excellent diversification

The 3 months correlation between TMP and STL is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding TMP Steel and STL Technology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STL Technology and TMP Steel is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on TMP Steel are associated (or correlated) with STL Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STL Technology has no effect on the direction of TMP Steel i.e., TMP Steel and STL Technology go up and down completely randomly.

Pair Corralation between TMP Steel and STL Technology

Assuming the 90 days trading horizon TMP Steel is expected to generate 235.11 times less return on investment than STL Technology. But when comparing it to its historical volatility, TMP Steel is 4.21 times less risky than STL Technology. It trades about 0.01 of its potential returns per unit of risk. STL Technology Co is currently generating about 0.69 of returns per unit of risk over similar time horizon. If you would invest  3,385  in STL Technology Co on September 5, 2024 and sell it today you would earn a total of  3,085  from holding STL Technology Co or generate 91.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

TMP Steel  vs.  STL Technology Co

TMP Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TMP Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

STL Technology

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in STL Technology Co are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, STL Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TMP Steel and STL Technology

The main advantage of trading using opposite TMP Steel and STL Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TMP Steel position performs unexpectedly, STL Technology can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in STL Technology will offset losses from the drop in STL Technology's long position.

The idea behind TMP Steel and STL Technology Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.