Correlation Between AAEON Technology and TMP Steel

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

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

Diversification Opportunities for AAEON Technology and TMP Steel

0.82

Correlation Coefficient

AAEON Technology  TMP Steel

Very poor diversification

The 3 months correlation between AAEON and TMP is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding AAEON Technology and TMP Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMP Steel and AAEON Technology 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 AAEON Technology are associated (or correlated) with TMP Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMP Steel has no effect on the direction of AAEON Technology i.e., AAEON Technology and TMP Steel go up and down completely randomly.

Pair Corralation between AAEON Technology and TMP Steel

Assuming the 90 days trading horizon AAEON Technology is expected to generate 2.6 times more return on investment than TMP Steel. However, AAEON Technology is 2.6 times more volatile than TMP Steel. It trades about 0.1 of its potential returns per unit of risk. TMP Steel is currently generating about 0.09 per unit of risk. If you would invest  12,800  in AAEON Technology on December 27, 2024 and sell it today you would earn a total of  1,400  from holding AAEON Technology or generate 10.94% return on investment over 90 days.

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

AAEON Technology  vs.  TMP Steel

AAEON Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AAEON Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, AAEON Technology showed solid returns over the last few months and may actually be approaching a breakup point.

TMP Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TMP Steel are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, TMP Steel 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 AAEON Technology and TMP Steel

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

The idea behind AAEON Technology and TMP Steel 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.

Check out your portfolio center.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.