Correlation Between Tat Techno and CPI Aerostructures

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

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

Diversification Opportunities for Tat Techno and CPI Aerostructures

0.79

Correlation Coefficient

Tat Techno  CPI Aerostructures

Poor diversification

The 3 months correlation between Tat and CPI is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Tat Techno and CPI Aerostructures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CPI Aerostructures and Tat Techno 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 Tat Techno are associated (or correlated) with CPI Aerostructures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CPI Aerostructures has no effect on the direction of Tat Techno i.e., Tat Techno and CPI Aerostructures go up and down completely randomly.

Pair Corralation between Tat Techno and CPI Aerostructures

Given the investment horizon of 90 days Tat Techno is expected to generate 0.87 times more return on investment than CPI Aerostructures. However, Tat Techno is 1.15 times less risky than CPI Aerostructures. It trades about 0.01 of its potential returns per unit of risk. CPI Aerostructures is currently generating about -0.02 per unit of risk. If you would invest  2,639  in Tat Techno on December 26, 2024 and sell it today you would lose (70.00) from holding Tat Techno or give up 2.65% of portfolio value over 90 days.

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

Tat Techno  vs.  CPI Aerostructures

Tat Techno

Risk-Adjusted Performance

Very Weak

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

CPI Aerostructures

Risk-Adjusted Performance

Very Weak

Over the last 90 days CPI Aerostructures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CPI Aerostructures 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 Tat Techno and CPI Aerostructures

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

The idea behind Tat Techno and CPI Aerostructures 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.