Correlation Between Total Transport and Servotech Power

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

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

Diversification Opportunities for Total Transport and Servotech Power

0.41

Correlation Coefficient

Total Transport  Servotech Power

Very weak diversification

The 3 months correlation between Total and Servotech is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Total Transport Systems and Servotech Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Servotech Power Systems and Total Transport 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 Total Transport Systems are associated (or correlated) with Servotech Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Servotech Power Systems has no effect on the direction of Total Transport i.e., Total Transport and Servotech Power go up and down completely randomly.

Pair Corralation between Total Transport and Servotech Power

Assuming the 90 days trading horizon Total Transport Systems is expected to under-perform the Servotech Power. But the stock apears to be less risky and, when comparing its historical volatility, Total Transport Systems is 1.36 times less risky than Servotech Power. The stock trades about -0.1 of its potential returns per unit of risk. The Servotech Power Systems is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  18,285  in Servotech Power Systems on September 22, 2024 and sell it today you would lose (1,815) from holding Servotech Power Systems or give up 9.93% of portfolio value over 90 days.

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

Total Transport Systems  vs.  Servotech Power Systems

Total Transport Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Total Transport Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Servotech Power Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Servotech Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Total Transport and Servotech Power

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

The idea behind Total Transport Systems and Servotech Power Systems 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.