Correlation Between MIC Electronics and Tree House

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

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

Diversification Opportunities for MIC Electronics and Tree House

0.48

Correlation Coefficient

MIC Electronics  Tree House

Very weak diversification

The 3 months correlation between MIC and Tree is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding MIC Electronics Limited and Tree House Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tree House Education and MIC Electronics 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 MIC Electronics Limited are associated (or correlated) with Tree House. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tree House Education has no effect on the direction of MIC Electronics i.e., MIC Electronics and Tree House go up and down completely randomly.

Pair Corralation between MIC Electronics and Tree House

Assuming the 90 days trading horizon MIC Electronics Limited is expected to generate 1.07 times more return on investment than Tree House. However, MIC Electronics is 1.07 times more volatile than Tree House Education. It trades about 0.13 of its potential returns per unit of risk. Tree House Education is currently generating about 0.02 per unit of risk. If you would invest  1,340  in MIC Electronics Limited on September 28, 2024 and sell it today you would earn a total of  7,510  from holding MIC Electronics Limited or generate 560.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

MIC Electronics Limited  vs.  Tree House Education

MIC Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Tree House Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tree House Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Tree House is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with MIC Electronics and Tree House

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

The idea behind MIC Electronics Limited and Tree House Education 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 Global Correlations module to find global opportunities by holding instruments from different markets.