Correlation Between Talanx AG and Sea

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

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

Diversification Opportunities for Talanx AG and Sea

0.85

Correlation Coefficient

Talanx AG  Sea

Very poor diversification

The 3 months correlation between Talanx and Sea is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Talanx AG and Sea Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea Limited and Talanx AG 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 Talanx AG are associated (or correlated) with Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea Limited has no effect on the direction of Talanx AG i.e., Talanx AG and Sea go up and down completely randomly.

Pair Corralation between Talanx AG and Sea

Assuming the 90 days horizon Talanx AG is expected to generate 2.75 times less return on investment than Sea. But when comparing it to its historical volatility, Talanx AG is 2.04 times less risky than Sea. It trades about 0.08 of its potential returns per unit of risk. Sea Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,185  in Sea Limited on October 5, 2024 and sell it today you would earn a total of  5,975  from holding Sea Limited or generate 142.77% return on investment over 90 days.

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

Talanx AG  vs.  Sea Limited

Talanx AG

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Talanx AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Talanx AG reported solid returns over the last few months and may actually be approaching a breakup point.

Sea Limited

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Sea Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unsteady basic indicators, Sea reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Talanx AG and Sea

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

The idea behind Talanx AG and Sea Limited 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.