Correlation Between ITI and Trent

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

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

Diversification Opportunities for ITI and Trent

0.8

Correlation Coefficient

ITI  Trent

Very poor diversification

The 3 months correlation between ITI and Trent is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding ITI Limited and Trent Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trent Limited and ITI 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 ITI Limited are associated (or correlated) with Trent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trent Limited has no effect on the direction of ITI i.e., ITI and Trent go up and down completely randomly.

Pair Corralation between ITI and Trent

Assuming the 90 days trading horizon ITI Limited is expected to under-perform the Trent. In addition to that, ITI is 1.81 times more volatile than Trent Limited. It trades about -0.11 of its total potential returns per unit of risk. Trent Limited is currently generating about -0.14 per unit of volatility. If you would invest  695,435  in Trent Limited on December 30, 2024 and sell it today you would lose (162,920) from holding Trent Limited or give up 23.43% of portfolio value over 90 days.

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

ITI Limited  vs.  Trent Limited

ITI Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days ITI Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Trent Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trent Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with ITI and Trent

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

The idea behind ITI Limited and Trent 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.