Correlation Between S A P and Transcontinental

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

By analyzing existing cross correlation between Saputo Inc and Transcontinental, you can compare the effects of market volatilities on S A P and Transcontinental 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 S A P with a short position of Transcontinental. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and Transcontinental.

Diversification Opportunities for S A P and Transcontinental

-0.32

Correlation Coefficient

S A P  Transcontinental

Very good diversification

The 3 months correlation between SAP and Transcontinental is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Saputo Inc and Transcontinental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transcontinental and S A P 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 Saputo Inc are associated (or correlated) with Transcontinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transcontinental has no effect on the direction of S A P i.e., S A P and Transcontinental go up and down completely randomly.

Pair Corralation between S A P and Transcontinental

Assuming the 90 days trading horizon Saputo Inc is expected to under-perform the Transcontinental. But the stock apears to be less risky and, when comparing its historical volatility, Saputo Inc is 1.04 times less risky than Transcontinental. The stock trades about -0.04 of its potential returns per unit of risk. The Transcontinental is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,737  in Transcontinental on December 2, 2024 and sell it today you would lose (2.00) from holding Transcontinental or give up 0.12% of portfolio value over 90 days.

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

Saputo Inc  vs.  Transcontinental

Saputo Inc

Risk-Adjusted Performance

Very Weak

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

Transcontinental

Risk-Adjusted Performance

Very Weak

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

Pair Trading with S A P and Transcontinental

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

The idea behind Saputo Inc and Transcontinental 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.