Correlation Between Tree House and Data Patterns

Can any of the company-specific risk be diversified away by investing in both Tree House and Data Patterns 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 Data Patterns 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 Data Patterns Limited, you can compare the effects of market volatilities on Tree House and Data Patterns 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 Data Patterns. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tree House and Data Patterns.

Diversification Opportunities for Tree House and Data Patterns

0.46

Correlation Coefficient

Tree House  Data Patterns

Very weak diversification

The 3 months correlation between Tree and Data is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Tree House Education and Data Patterns Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Data Patterns Limited 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 Data Patterns. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Data Patterns Limited has no effect on the direction of Tree House i.e., Tree House and Data Patterns go up and down completely randomly.

Pair Corralation between Tree House and Data Patterns

Assuming the 90 days trading horizon Tree House Education is expected to generate 0.72 times more return on investment than Data Patterns. However, Tree House Education is 1.4 times less risky than Data Patterns. It trades about 0.05 of its potential returns per unit of risk. Data Patterns Limited is currently generating about 0.01 per unit of risk. If you would invest  1,752  in Tree House Education on October 26, 2024 and sell it today you would earn a total of  108.00  from holding Tree House Education or generate 6.16% return on investment over 90 days.

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

Tree House Education  vs.  Data Patterns Limited

Tree House Education

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tree House Education are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Tree House may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Data Patterns Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Data Patterns Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Data Patterns is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tree House and Data Patterns

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

The idea behind Tree House Education and Data Patterns Limited 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.