Correlation Between Action Construction and Tree House

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

By analyzing existing cross correlation between Action Construction Equipment and Tree House Education, you can compare the effects of market volatilities on Action Construction and Tree House 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 Action Construction with a short position of Tree House. Check out your portfolio center. Please also check ongoing floating volatility patterns of Action Construction and Tree House.

Diversification Opportunities for Action Construction and Tree House

0.36

Correlation Coefficient

Action Construction  Tree House

Weak diversification

The 3 months correlation between Action and Tree is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Action Construction Equipment and Tree House Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tree House Education and Action Construction 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 Action Construction Equipment are associated (or correlated) with Tree House. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tree House Education has no effect on the direction of Action Construction i.e., Action Construction and Tree House go up and down completely randomly.

Pair Corralation between Action Construction and Tree House

Assuming the 90 days trading horizon Action Construction Equipment is expected to generate 2.02 times more return on investment than Tree House. However, Action Construction is 2.02 times more volatile than Tree House Education. It trades about 0.0 of its potential returns per unit of risk. Tree House Education is currently generating about -0.51 per unit of risk. If you would invest  140,915  in Action Construction Equipment on October 12, 2024 and sell it today you would lose (1,040) from holding Action Construction Equipment or give up 0.74% of portfolio value over 90 days.

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

Action Construction Equipment  vs.  Tree House Education

Action Construction

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Action Construction Equipment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, Action Construction may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Tree House Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tree House Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Tree House is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Action Construction and Tree House

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

The idea behind Action Construction Equipment and Tree House Education 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.