Correlation Between CTS and Four Seasons

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

By analyzing existing cross correlation between CTS Corporation and Four Seasons Education, you can compare the effects of market volatilities on CTS and Four Seasons 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 CTS with a short position of Four Seasons. Check out your portfolio center. Please also check ongoing floating volatility patterns of CTS and Four Seasons.

Diversification Opportunities for CTS and Four Seasons

-0.22

Correlation Coefficient

CTS  Four Seasons

Very good diversification

The 3 months correlation between CTS and Four is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding CTS Corp. and Four Seasons Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Four Seasons Education and CTS 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 CTS Corporation are associated (or correlated) with Four Seasons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Four Seasons Education has no effect on the direction of CTS i.e., CTS and Four Seasons go up and down completely randomly.

Pair Corralation between CTS and Four Seasons

Considering the 90-day investment horizon CTS is expected to generate 75.33 times less return on investment than Four Seasons. But when comparing it to its historical volatility, CTS Corporation is 42.01 times less risky than Four Seasons. It trades about 0.05 of its potential returns per unit of risk. Four Seasons Education is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,194  in Four Seasons Education on September 19, 2024 and sell it today you would lose (100.00) from holding Four Seasons Education or give up 8.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.03%
Values	Daily Returns

CTS Corp.  vs.  Four Seasons Education

CTS Corporation

Risk-Adjusted Performance

5 of 100

OK

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

Four Seasons Education

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Four Seasons Education are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Four Seasons unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CTS and Four Seasons

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

The idea behind CTS Corporation and Four Seasons 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.

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.