Correlation Between Carebook Technologies and Therma Bright

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

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

Diversification Opportunities for Carebook Technologies and Therma Bright

0.56

Correlation Coefficient

Carebook Technologies  Therma Bright

Very weak diversification

The 3 months correlation between Carebook and Therma is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Carebook Technologies and Therma Bright in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Therma Bright and Carebook Technologies 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 Carebook Technologies are associated (or correlated) with Therma Bright. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Therma Bright has no effect on the direction of Carebook Technologies i.e., Carebook Technologies and Therma Bright go up and down completely randomly.

Pair Corralation between Carebook Technologies and Therma Bright

Assuming the 90 days trading horizon Carebook Technologies is expected to generate 1.22 times more return on investment than Therma Bright. However, Carebook Technologies is 1.22 times more volatile than Therma Bright. It trades about 0.08 of its potential returns per unit of risk. Therma Bright is currently generating about 0.06 per unit of risk. If you would invest  7.50  in Carebook Technologies on October 10, 2024 and sell it today you would earn a total of  2.00  from holding Carebook Technologies or generate 26.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Carebook Technologies  vs.  Therma Bright

Carebook Technologies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Carebook Technologies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental drivers, Carebook Technologies showed solid returns over the last few months and may actually be approaching a breakup point.

Therma Bright

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Therma Bright are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Therma Bright showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carebook Technologies and Therma Bright

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

The idea behind Carebook Technologies and Therma Bright 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.