Correlation Between TMP Steel and Rafael Microelectronics

Can any of the company-specific risk be diversified away by investing in both TMP Steel and Rafael Microelectronics 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 Rafael Microelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TMP Steel and Rafael Microelectronics, you can compare the effects of market volatilities on TMP Steel and Rafael Microelectronics 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 Rafael Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of TMP Steel and Rafael Microelectronics.

Diversification Opportunities for TMP Steel and Rafael Microelectronics

0.74

Correlation Coefficient

TMP Steel  Rafael Microelectronics

Poor diversification

The 3 months correlation between TMP and Rafael is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding TMP Steel and Rafael Microelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rafael Microelectronics 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 Rafael Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rafael Microelectronics has no effect on the direction of TMP Steel i.e., TMP Steel and Rafael Microelectronics go up and down completely randomly.

Pair Corralation between TMP Steel and Rafael Microelectronics

Assuming the 90 days trading horizon TMP Steel is expected to under-perform the Rafael Microelectronics. But the stock apears to be less risky and, when comparing its historical volatility, TMP Steel is 1.64 times less risky than Rafael Microelectronics. The stock trades about -0.19 of its potential returns per unit of risk. The Rafael Microelectronics is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  12,600  in Rafael Microelectronics on October 8, 2024 and sell it today you would lose (750.00) from holding Rafael Microelectronics or give up 5.95% of portfolio value over 90 days.

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

TMP Steel  vs.  Rafael Microelectronics

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.

Rafael Microelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rafael Microelectronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Rafael Microelectronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with TMP Steel and Rafael Microelectronics

The main advantage of trading using opposite TMP Steel and Rafael Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TMP Steel position performs unexpectedly, Rafael Microelectronics 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 Rafael Microelectronics will offset losses from the drop in Rafael Microelectronics' long position.

The idea behind TMP Steel and Rafael Microelectronics 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 Stocks Directory module to find actively traded stocks across global markets.