Correlation Between Touchstone Large and Oil Equipment

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

By analyzing existing cross correlation between Touchstone Large Cap and Oil Equipment Services, you can compare the effects of market volatilities on Touchstone Large and Oil Equipment 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 Touchstone Large with a short position of Oil Equipment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Touchstone Large and Oil Equipment.

Diversification Opportunities for Touchstone Large and Oil Equipment

0.0

Correlation Coefficient

Touchstone Large  Oil Equipment

Pay attention - limited upside

The 3 months correlation between Touchstone and Oil is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Touchstone Large Cap and Oil Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Equipment Services and Touchstone Large 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 Touchstone Large Cap are associated (or correlated) with Oil Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Equipment Services has no effect on the direction of Touchstone Large i.e., Touchstone Large and Oil Equipment go up and down completely randomly.

Pair Corralation between Touchstone Large and Oil Equipment

Assuming the 90 days horizon Touchstone Large Cap is expected to generate 0.29 times more return on investment than Oil Equipment. However, Touchstone Large Cap is 3.49 times less risky than Oil Equipment. It trades about 0.01 of its potential returns per unit of risk. Oil Equipment Services is currently generating about -0.05 per unit of risk. If you would invest  1,909  in Touchstone Large Cap on December 22, 2024 and sell it today you would earn a total of  6.00  from holding Touchstone Large Cap or generate 0.31% return on investment over 90 days.

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

Touchstone Large Cap  vs.  Oil Equipment Services

Touchstone Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Touchstone Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Touchstone Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Oil Equipment Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Oil Equipment Services has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Touchstone Large and Oil Equipment

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

The idea behind Touchstone Large Cap and Oil Equipment Services 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.