Correlation Between Maple Leaf and Tree Island

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

By analyzing existing cross correlation between Maple Leaf Foods and Tree Island Steel, you can compare the effects of market volatilities on Maple Leaf and Tree Island 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 Maple Leaf with a short position of Tree Island. Check out your portfolio center. Please also check ongoing floating volatility patterns of Maple Leaf and Tree Island.

Diversification Opportunities for Maple Leaf and Tree Island

-0.16

Correlation Coefficient

Maple Leaf  Tree Island

Good diversification

The 3 months correlation between Maple and Tree is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Maple Leaf Foods and Tree Island Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tree Island Steel and Maple Leaf 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 Maple Leaf Foods are associated (or correlated) with Tree Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tree Island Steel has no effect on the direction of Maple Leaf i.e., Maple Leaf and Tree Island go up and down completely randomly.

Pair Corralation between Maple Leaf and Tree Island

Assuming the 90 days trading horizon Maple Leaf Foods is expected to under-perform the Tree Island. But the stock apears to be less risky and, when comparing its historical volatility, Maple Leaf Foods is 1.21 times less risky than Tree Island. The stock trades about -0.01 of its potential returns per unit of risk. The Tree Island Steel is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  315.00  in Tree Island Steel on October 11, 2024 and sell it today you would lose (18.00) from holding Tree Island Steel or give up 5.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Maple Leaf Foods  vs.  Tree Island Steel

Maple Leaf Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maple Leaf Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Tree Island Steel

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Tree Island Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Tree Island is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Maple Leaf and Tree Island

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

The idea behind Maple Leaf Foods and Tree Island Steel 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.