Correlation Between Tree House and Elgi Rubber

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

Diversification Opportunities for Tree House and Elgi Rubber

0.18

Correlation Coefficient

Tree House  Elgi Rubber

Average diversification

The 3 months correlation between Tree and Elgi is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Tree House Education and Elgi Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elgi Rubber 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 Elgi Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elgi Rubber has no effect on the direction of Tree House i.e., Tree House and Elgi Rubber go up and down completely randomly.

Pair Corralation between Tree House and Elgi Rubber

Assuming the 90 days trading horizon Tree House Education is expected to under-perform the Elgi Rubber. But the stock apears to be less risky and, when comparing its historical volatility, Tree House Education is 2.86 times less risky than Elgi Rubber. The stock trades about -0.21 of its potential returns per unit of risk. The Elgi Rubber is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  11,924  in Elgi Rubber on October 23, 2024 and sell it today you would lose (352.00) from holding Elgi Rubber or give up 2.95% of portfolio value over 90 days.

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

Tree House Education  vs.  Elgi Rubber

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 latest unsteady 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.

Elgi Rubber

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Elgi Rubber are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Elgi Rubber sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tree House and Elgi Rubber

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

The idea behind Tree House Education and Elgi Rubber 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.