Correlation Between Tree House and Automotive Stampings

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

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

Diversification Opportunities for Tree House and Automotive Stampings

0.52

Correlation Coefficient

Tree House  Automotive Stampings

Very weak diversification

The 3 months correlation between Tree and Automotive is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Tree House Education and Automotive Stampings and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automotive Stampings and and Tree House 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 Tree House Education are associated (or correlated) with Automotive Stampings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automotive Stampings and has no effect on the direction of Tree House i.e., Tree House and Automotive Stampings go up and down completely randomly.

Pair Corralation between Tree House and Automotive Stampings

Assuming the 90 days trading horizon Tree House Education is expected to generate 0.86 times more return on investment than Automotive Stampings. However, Tree House Education is 1.17 times less risky than Automotive Stampings. It trades about -0.02 of its potential returns per unit of risk. Automotive Stampings and is currently generating about -0.06 per unit of risk. If you would invest  1,730  in Tree House Education on October 10, 2024 and sell it today you would lose (74.00) from holding Tree House Education or give up 4.28% of portfolio value over 90 days.

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

Tree House Education  vs.  Automotive Stampings and

Tree House Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tree House Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Tree House is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Automotive Stampings and

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Automotive Stampings and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Tree House and Automotive Stampings

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

The idea behind Tree House Education and Automotive Stampings and 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.