Correlation Between Absolute Clean and TOA PAINT

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

By analyzing existing cross correlation between Absolute Clean Energy and TOA PAINT, you can compare the effects of market volatilities on Absolute Clean and TOA PAINT 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 Absolute Clean with a short position of TOA PAINT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Clean and TOA PAINT.

Diversification Opportunities for Absolute Clean and TOA PAINT

0.54

Correlation Coefficient

Absolute Clean  TOA PAINT

Very weak diversification

The 3 months correlation between Absolute and TOA is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Clean Energy and TOA PAINT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOA PAINT and Absolute Clean 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 Absolute Clean Energy are associated (or correlated) with TOA PAINT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOA PAINT has no effect on the direction of Absolute Clean i.e., Absolute Clean and TOA PAINT go up and down completely randomly.

Pair Corralation between Absolute Clean and TOA PAINT

Assuming the 90 days trading horizon Absolute Clean is expected to generate 20.56 times less return on investment than TOA PAINT. But when comparing it to its historical volatility, Absolute Clean Energy is 1.35 times less risky than TOA PAINT. It trades about 0.01 of its potential returns per unit of risk. TOA PAINT is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,443  in TOA PAINT on October 8, 2024 and sell it today you would earn a total of  47.00  from holding TOA PAINT or generate 3.26% return on investment over 90 days.

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

Absolute Clean Energy  vs.  TOA PAINT

Absolute Clean Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Absolute Clean Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Absolute Clean is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

TOA PAINT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TOA PAINT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Absolute Clean and TOA PAINT

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

The idea behind Absolute Clean Energy and TOA PAINT 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.