Correlation Between European Residential and Tower Resources

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

By analyzing existing cross correlation between European Residential Real and Tower Resources, you can compare the effects of market volatilities on European Residential and Tower Resources 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 European Residential with a short position of Tower Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Residential and Tower Resources.

Diversification Opportunities for European Residential and Tower Resources

0.06

Correlation Coefficient

European Residential  Tower Resources

Significant diversification

The 3 months correlation between European and Tower is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and Tower Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Resources and European Residential 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 European Residential Real are associated (or correlated) with Tower Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Resources has no effect on the direction of European Residential i.e., European Residential and Tower Resources go up and down completely randomly.

Pair Corralation between European Residential and Tower Resources

Assuming the 90 days trading horizon European Residential Real is expected to under-perform the Tower Resources. In addition to that, European Residential is 1.04 times more volatile than Tower Resources. It trades about -0.04 of its total potential returns per unit of risk. Tower Resources is currently generating about 0.16 per unit of volatility. If you would invest  9.00  in Tower Resources on October 10, 2024 and sell it today you would earn a total of  5.00  from holding Tower Resources or generate 55.56% return on investment over 90 days.

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

European Residential Real  vs.  Tower Resources

European Residential Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Residential Real has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Tower Resources

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tower Resources are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Tower Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with European Residential and Tower Resources

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

The idea behind European Residential Real and Tower Resources 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.