Correlation Between Information Technology and Transcend Information

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

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

Diversification Opportunities for Information Technology and Transcend Information

0.08

Correlation Coefficient

Information Technology  Transcend Information

Significant diversification

The 3 months correlation between Information and Transcend is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and Transcend Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transcend Information and Information 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 Information Technology Total are associated (or correlated) with Transcend Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transcend Information has no effect on the direction of Information Technology i.e., Information Technology and Transcend Information go up and down completely randomly.

Pair Corralation between Information Technology and Transcend Information

Assuming the 90 days trading horizon Information Technology Total is expected to generate 2.16 times more return on investment than Transcend Information. However, Information Technology is 2.16 times more volatile than Transcend Information. It trades about 0.03 of its potential returns per unit of risk. Transcend Information is currently generating about -0.08 per unit of risk. If you would invest  4,885  in Information Technology Total on December 5, 2024 and sell it today you would earn a total of  145.00  from holding Information Technology Total or generate 2.97% return on investment over 90 days.

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

Information Technology Total  vs.  Transcend Information

Information Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Information Technology Total are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Information Technology is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Transcend Information

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transcend Information has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Transcend Information 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 Information Technology and Transcend Information

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

The idea behind Information Technology Total and Transcend Information 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.