Correlation Between TMT Steel and TPI Polene

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

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

Diversification Opportunities for TMT Steel and TPI Polene

0.56

Correlation Coefficient

TMT Steel  TPI Polene

Very weak diversification

The 3 months correlation between TMT and TPI is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding TMT Steel Public and TPI Polene Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPI Polene Public and TMT Steel 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 TMT Steel Public are associated (or correlated) with TPI Polene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPI Polene Public has no effect on the direction of TMT Steel i.e., TMT Steel and TPI Polene go up and down completely randomly.

Pair Corralation between TMT Steel and TPI Polene

Assuming the 90 days trading horizon TMT Steel Public is expected to generate 1.32 times more return on investment than TPI Polene. However, TMT Steel is 1.32 times more volatile than TPI Polene Public. It trades about 0.04 of its potential returns per unit of risk. TPI Polene Public is currently generating about -0.03 per unit of risk. If you would invest  314.00  in TMT Steel Public on December 28, 2024 and sell it today you would earn a total of  12.00  from holding TMT Steel Public or generate 3.82% return on investment over 90 days.

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

TMT Steel Public  vs.  TPI Polene Public

TMT Steel Public

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TMT Steel Public are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, TMT Steel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

TPI Polene Public

Risk-Adjusted Performance

Very Weak

Over the last 90 days TPI Polene Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, TPI Polene is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with TMT Steel and TPI Polene

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

The idea behind TMT Steel Public and TPI Polene Public 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.