Correlation Between Information Technology and TCI

Can any of the company-specific risk be diversified away by investing in both Information Technology and TCI 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 TCI 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 TCI Co, you can compare the effects of market volatilities on Information Technology and TCI 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 TCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Information Technology and TCI.

Diversification Opportunities for Information Technology and TCI

-0.28

Correlation Coefficient

Information Technology  TCI

Very good diversification

The 3 months correlation between Information and TCI is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and TCI Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TCI Co 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 TCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TCI Co has no effect on the direction of Information Technology i.e., Information Technology and TCI go up and down completely randomly.

Pair Corralation between Information Technology and TCI

Assuming the 90 days trading horizon Information Technology Total is expected to generate 1.73 times more return on investment than TCI. However, Information Technology is 1.73 times more volatile than TCI Co. It trades about 0.07 of its potential returns per unit of risk. TCI Co is currently generating about -0.08 per unit of risk. If you would invest  4,280  in Information Technology Total on September 16, 2024 and sell it today you would earn a total of  405.00  from holding Information Technology Total or generate 9.46% return on investment over 90 days.

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

Information Technology Total  vs.  TCI Co

Information Technology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Information Technology Total are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Information Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TCI Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TCI Co 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 Information Technology and TCI

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

The idea behind Information Technology Total and TCI 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.