Correlation Between TNB and GAIA

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

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

Diversification Opportunities for TNB and GAIA

0.67

Correlation Coefficient

TNB  GAIA

Poor diversification

The 3 months correlation between TNB and GAIA is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding TNB and GAIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GAIA and TNB 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 TNB are associated (or correlated) with GAIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GAIA has no effect on the direction of TNB i.e., TNB and GAIA go up and down completely randomly.

Pair Corralation between TNB and GAIA

Assuming the 90 days trading horizon TNB is expected to generate 0.33 times more return on investment than GAIA. However, TNB is 3.0 times less risky than GAIA. It trades about -0.25 of its potential returns per unit of risk. GAIA is currently generating about -0.42 per unit of risk. If you would invest  0.01  in TNB on November 27, 2024 and sell it today you would lose  0.00  from holding TNB or give up 12.09% of portfolio value over 90 days.

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

TNB  vs.  GAIA

TNB

Risk-Adjusted Performance

Very Weak

Over the last 90 days TNB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, TNB is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

GAIA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GAIA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, GAIA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TNB and GAIA

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

The idea behind TNB and GAIA 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.