Correlation Between Sims and Tlou Energy

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

By analyzing existing cross correlation between Sims and Tlou Energy, you can compare the effects of market volatilities on Sims and Tlou Energy 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 Sims with a short position of Tlou Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sims and Tlou Energy.

Diversification Opportunities for Sims and Tlou Energy

0.07

Correlation Coefficient

Sims  Tlou Energy

Significant diversification

The 3 months correlation between Sims and Tlou is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Sims and Tlou Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tlou Energy and Sims 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 Sims are associated (or correlated) with Tlou Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tlou Energy has no effect on the direction of Sims i.e., Sims and Tlou Energy go up and down completely randomly.

Pair Corralation between Sims and Tlou Energy

Assuming the 90 days trading horizon Sims is expected to generate 3.2 times less return on investment than Tlou Energy. But when comparing it to its historical volatility, Sims is 6.0 times less risky than Tlou Energy. It trades about 0.33 of its potential returns per unit of risk. Tlou Energy is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1.30  in Tlou Energy on December 4, 2024 and sell it today you would earn a total of  0.30  from holding Tlou Energy or generate 23.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Sims  vs.  Tlou Energy

Sims

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sims are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Sims may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Tlou Energy

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Sims and Tlou Energy

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

The idea behind Sims and Tlou Energy 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.