Correlation Between TMP Steel and EirGenix

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

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

Diversification Opportunities for TMP Steel and EirGenix

0.76

Correlation Coefficient

TMP Steel  EirGenix

Poor diversification

The 3 months correlation between TMP and EirGenix is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding TMP Steel and EirGenix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EirGenix 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 EirGenix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EirGenix has no effect on the direction of TMP Steel i.e., TMP Steel and EirGenix go up and down completely randomly.

Pair Corralation between TMP Steel and EirGenix

Assuming the 90 days trading horizon TMP Steel is expected to generate 28.44 times less return on investment than EirGenix. But when comparing it to its historical volatility, TMP Steel is 2.49 times less risky than EirGenix. It trades about 0.03 of its potential returns per unit of risk. EirGenix is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  7,160  in EirGenix on October 24, 2024 and sell it today you would earn a total of  890.00  from holding EirGenix or generate 12.43% return on investment over 90 days.

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

TMP Steel  vs.  EirGenix

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.

EirGenix

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EirGenix 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.

Pair Trading with TMP Steel and EirGenix

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

The idea behind TMP Steel and EirGenix 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.