Correlation Between Covestro and Topaz Energy

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

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

Diversification Opportunities for Covestro and Topaz Energy

0.59

Correlation Coefficient

Covestro  Topaz Energy

Very weak diversification

The 3 months correlation between Covestro and Topaz is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Covestro AG and Topaz Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Topaz Energy Corp and Covestro 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 Covestro AG are associated (or correlated) with Topaz Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Topaz Energy Corp has no effect on the direction of Covestro i.e., Covestro and Topaz Energy go up and down completely randomly.

Pair Corralation between Covestro and Topaz Energy

Assuming the 90 days horizon Covestro AG is expected to under-perform the Topaz Energy. But the pink sheet apears to be less risky and, when comparing its historical volatility, Covestro AG is 2.73 times less risky than Topaz Energy. The pink sheet trades about -0.12 of its potential returns per unit of risk. The Topaz Energy Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,898  in Topaz Energy Corp on October 27, 2024 and sell it today you would lose (32.00) from holding Topaz Energy Corp or give up 1.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.75%
Values	Daily Returns

Covestro AG  vs.  Topaz Energy Corp

Covestro AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Covestro AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Covestro is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Topaz Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Topaz Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Topaz Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Covestro and Topaz Energy

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

The idea behind Covestro AG and Topaz Energy Corp 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.