Correlation Between InterContinental and TC Energy

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

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

Diversification Opportunities for InterContinental and TC Energy

0.78

Correlation Coefficient

InterContinental  TC Energy

Poor diversification

The 3 months correlation between InterContinental and TRS is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and TC Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TC Energy and InterContinental 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 InterContinental Hotels Group are associated (or correlated) with TC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TC Energy has no effect on the direction of InterContinental i.e., InterContinental and TC Energy go up and down completely randomly.

Pair Corralation between InterContinental and TC Energy

Assuming the 90 days trading horizon InterContinental is expected to generate 1.12 times less return on investment than TC Energy. But when comparing it to its historical volatility, InterContinental Hotels Group is 1.0 times less risky than TC Energy. It trades about 0.12 of its potential returns per unit of risk. TC Energy is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,465  in TC Energy on September 27, 2024 and sell it today you would earn a total of  914.00  from holding TC Energy or generate 26.38% return on investment over 90 days.

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

InterContinental Hotels Group  vs.  TC Energy

InterContinental Hotels

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, InterContinental reported solid returns over the last few months and may actually be approaching a breakup point.

TC Energy

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TC Energy are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, TC Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with InterContinental and TC Energy

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

The idea behind InterContinental Hotels Group and TC Energy 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.