Correlation Between Tat Techno and Melrose Industries
Can any of the company-specific risk be diversified away by investing in both Tat Techno and Melrose Industries 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 Melrose Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tat Techno and Melrose Industries PLC, you can compare the effects of market volatilities on Tat Techno and Melrose Industries 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 Melrose Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tat Techno and Melrose Industries.
Diversification Opportunities for Tat Techno and Melrose Industries
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Tat and Melrose is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Tat Techno and Melrose Industries PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melrose Industries PLC 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 Melrose Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melrose Industries PLC has no effect on the direction of Tat Techno i.e., Tat Techno and Melrose Industries go up and down completely randomly.
Pair Corralation between Tat Techno and Melrose Industries
Given the investment horizon of 90 days Tat Techno is expected to generate 0.89 times more return on investment than Melrose Industries. However, Tat Techno is 1.12 times less risky than Melrose Industries. It trades about 0.24 of its potential returns per unit of risk. Melrose Industries PLC is currently generating about 0.11 per unit of risk. If you would invest 1,823 in Tat Techno on October 31, 2024 and sell it today you would earn a total of 1,207 from holding Tat Techno or generate 66.21% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Tat Techno vs. Melrose Industries PLC
Performance |
Timeline |
Tat Techno |
Melrose Industries PLC |
Tat Techno and Melrose Industries Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Tat Techno and Melrose Industries
The main advantage of trading using opposite Tat Techno and Melrose Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tat Techno position performs unexpectedly, Melrose Industries 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 Melrose Industries will offset losses from the drop in Melrose Industries' long position.Tat Techno vs. Innovative Solutions and | ||
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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