Correlation Between Servotech Power and Tree House

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

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

Diversification Opportunities for Servotech Power and Tree House

0.12

Correlation Coefficient

Servotech Power  Tree House

Average diversification

The 3 months correlation between Servotech and Tree is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Servotech Power Systems 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 Servotech Power 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 Servotech Power Systems 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 Servotech Power i.e., Servotech Power and Tree House go up and down completely randomly.

Pair Corralation between Servotech Power and Tree House

Assuming the 90 days trading horizon Servotech Power Systems is expected to under-perform the Tree House. But the stock apears to be less risky and, when comparing its historical volatility, Servotech Power Systems is 1.69 times less risky than Tree House. The stock trades about -0.11 of its potential returns per unit of risk. The Tree House Education is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,549  in Tree House Education on September 20, 2024 and sell it today you would earn a total of  215.00  from holding Tree House Education or generate 13.88% return on investment over 90 days.

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

Servotech Power Systems  vs.  Tree House Education

Servotech Power Systems

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Servotech Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Servotech Power is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Servotech Power and Tree House

The main advantage of trading using opposite Servotech Power and Tree House positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Servotech Power 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 Servotech Power Systems 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.