Correlation Between City Union and Tree House

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

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

Diversification Opportunities for City Union and Tree House

-0.1

Correlation Coefficient

City Union  Tree House

Good diversification

The 3 months correlation between City and Tree is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding City Union Bank 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 City Union 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 City Union Bank 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 City Union i.e., City Union and Tree House go up and down completely randomly.

Pair Corralation between City Union and Tree House

Assuming the 90 days trading horizon City Union is expected to generate 2.79 times less return on investment than Tree House. But when comparing it to its historical volatility, City Union Bank is 1.57 times less risky than Tree House. It trades about 0.01 of its potential returns per unit of risk. Tree House Education is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,775  in Tree House Education on September 26, 2024 and sell it today you would earn a total of  25.00  from holding Tree House Education or generate 1.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.59%
Values	Daily Returns

City Union Bank  vs.  Tree House Education

City Union Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in City Union Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, City Union may actually be approaching a critical reversion point that can send shares even higher in January 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with City Union and Tree House

The main advantage of trading using opposite City Union and Tree House positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if City Union 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 City Union Bank 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.