Correlation Between Stock Exchange and Tropical Canning

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

By analyzing existing cross correlation between Stock Exchange Of and Tropical Canning Public, you can compare the effects of market volatilities on Stock Exchange and Tropical Canning 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 Stock Exchange with a short position of Tropical Canning. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stock Exchange and Tropical Canning.

Diversification Opportunities for Stock Exchange and Tropical Canning

0.55

Correlation Coefficient

Stock Exchange  Tropical Canning

Very weak diversification

The 3 months correlation between Stock and Tropical is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Stock Exchange Of and Tropical Canning Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tropical Canning Public and Stock Exchange 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 Stock Exchange Of are associated (or correlated) with Tropical Canning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tropical Canning Public has no effect on the direction of Stock Exchange i.e., Stock Exchange and Tropical Canning go up and down completely randomly.

Pair Corralation between Stock Exchange and Tropical Canning

Assuming the 90 days trading horizon Stock Exchange Of is expected to under-perform the Tropical Canning. But the index apears to be less risky and, when comparing its historical volatility, Stock Exchange Of is 1.7 times less risky than Tropical Canning. The index trades about -0.26 of its potential returns per unit of risk. The Tropical Canning Public is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  685.00  in Tropical Canning Public on December 30, 2024 and sell it today you would lose (85.00) from holding Tropical Canning Public or give up 12.41% of portfolio value over 90 days.

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

Stock Exchange Of  vs.  Tropical Canning Public

Pair Trading with Stock Exchange and Tropical Canning

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

The idea behind Stock Exchange Of and Tropical Canning Public 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.