Correlation Between Electronics Mart and Tree House

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

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

Diversification Opportunities for Electronics Mart and Tree House

0.52

Correlation Coefficient

Electronics Mart  Tree House

Very weak diversification

The 3 months correlation between Electronics and Tree is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Electronics Mart India 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 Electronics Mart 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 Electronics Mart India 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 Electronics Mart i.e., Electronics Mart and Tree House go up and down completely randomly.

Pair Corralation between Electronics Mart and Tree House

Assuming the 90 days trading horizon Electronics Mart India is expected to under-perform the Tree House. But the stock apears to be less risky and, when comparing its historical volatility, Electronics Mart India is 1.14 times less risky than Tree House. The stock trades about -0.16 of its potential returns per unit of risk. The Tree House Education is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,549  in Tree House Education on November 20, 2024 and sell it today you would lose (99.00) from holding Tree House Education or give up 6.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Electronics Mart India  vs.  Tree House Education

Electronics Mart India

Risk-Adjusted Performance

Very Weak

Over the last 90 days Electronics Mart India has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Tree House Education

Risk-Adjusted Performance

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Electronics Mart and Tree House

The main advantage of trading using opposite Electronics Mart and Tree House positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electronics Mart 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 Electronics Mart India 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.

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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.