Correlation Between Trencor and Adcorp

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

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

Diversification Opportunities for Trencor and Adcorp

0.02

Correlation Coefficient

Trencor  Adcorp

Significant diversification

The 3 months correlation between Trencor and Adcorp is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Trencor and Adcorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adcorp and Trencor 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 Trencor are associated (or correlated) with Adcorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adcorp has no effect on the direction of Trencor i.e., Trencor and Adcorp go up and down completely randomly.

Pair Corralation between Trencor and Adcorp

Assuming the 90 days trading horizon Trencor is expected to generate 1.12 times less return on investment than Adcorp. But when comparing it to its historical volatility, Trencor is 2.5 times less risky than Adcorp. It trades about 0.05 of its potential returns per unit of risk. Adcorp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  50,616  in Adcorp on October 12, 2024 and sell it today you would lose (4,116) from holding Adcorp or give up 8.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.39%
Values	Daily Returns

Trencor  vs.  Adcorp

Trencor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trencor are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Trencor exhibited solid returns over the last few months and may actually be approaching a breakup point.

Adcorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adcorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Trencor and Adcorp

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

The idea behind Trencor and Adcorp 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.