Correlation Between Delta Manufacturing and TPL Plastech

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

By analyzing existing cross correlation between Delta Manufacturing Limited and TPL Plastech Limited, you can compare the effects of market volatilities on Delta Manufacturing and TPL Plastech 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 Delta Manufacturing with a short position of TPL Plastech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Delta Manufacturing and TPL Plastech.

Diversification Opportunities for Delta Manufacturing and TPL Plastech

0.12

Correlation Coefficient

Delta Manufacturing  TPL Plastech

Average diversification

The 3 months correlation between Delta and TPL is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Delta Manufacturing Limited and TPL Plastech Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPL Plastech Limited and Delta Manufacturing 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 Delta Manufacturing Limited are associated (or correlated) with TPL Plastech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPL Plastech Limited has no effect on the direction of Delta Manufacturing i.e., Delta Manufacturing and TPL Plastech go up and down completely randomly.

Pair Corralation between Delta Manufacturing and TPL Plastech

Assuming the 90 days trading horizon Delta Manufacturing is expected to generate 2.18 times less return on investment than TPL Plastech. But when comparing it to its historical volatility, Delta Manufacturing Limited is 1.01 times less risky than TPL Plastech. It trades about 0.04 of its potential returns per unit of risk. TPL Plastech Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,152  in TPL Plastech Limited on August 31, 2024 and sell it today you would earn a total of  6,519  from holding TPL Plastech Limited or generate 157.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.46%
Values	Daily Returns

Delta Manufacturing Limited  vs.  TPL Plastech Limited

Delta Manufacturing

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Manufacturing Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile technical and fundamental indicators, Delta Manufacturing sustained solid returns over the last few months and may actually be approaching a breakup point.

TPL Plastech Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TPL Plastech Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, TPL Plastech 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 Delta Manufacturing and TPL Plastech

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

The idea behind Delta Manufacturing Limited and TPL Plastech Limited 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.