Correlation Between World Technology and TCL Electronics

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

By analyzing existing cross correlation between World Technology Corp and TCL Electronics Holdings, you can compare the effects of market volatilities on World Technology and TCL Electronics 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 World Technology with a short position of TCL Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Technology and TCL Electronics.

Diversification Opportunities for World Technology and TCL Electronics

0.71

Correlation Coefficient

World Technology  TCL Electronics

Poor diversification

The 3 months correlation between World and TCL is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding World Technology Corp and TCL Electronics Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TCL Electronics Holdings and World Technology 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 World Technology Corp are associated (or correlated) with TCL Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TCL Electronics Holdings has no effect on the direction of World Technology i.e., World Technology and TCL Electronics go up and down completely randomly.

Pair Corralation between World Technology and TCL Electronics

Given the investment horizon of 90 days World Technology Corp is expected to generate 6.0 times more return on investment than TCL Electronics. However, World Technology is 6.0 times more volatile than TCL Electronics Holdings. It trades about 0.22 of its potential returns per unit of risk. TCL Electronics Holdings is currently generating about 0.17 per unit of risk. If you would invest  35.00  in World Technology Corp on December 4, 2024 and sell it today you would earn a total of  19.00  from holding World Technology Corp or generate 54.29% return on investment over 90 days.

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

World Technology Corp  vs.  TCL Electronics Holdings

World Technology Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in World Technology Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, World Technology exhibited solid returns over the last few months and may actually be approaching a breakup point.

TCL Electronics Holdings

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TCL Electronics Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, TCL Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with World Technology and TCL Electronics

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

The idea behind World Technology Corp and TCL Electronics Holdings 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.