Correlation Between Triton International and Solventum Corp

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

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

Diversification Opportunities for Triton International and Solventum Corp

0.06

Correlation Coefficient

Triton International  Solventum Corp

Significant diversification

The 3 months correlation between Triton and Solventum is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Triton International Limited and Solventum Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solventum Corp and Triton International 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 Triton International Limited are associated (or correlated) with Solventum Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solventum Corp has no effect on the direction of Triton International i.e., Triton International and Solventum Corp go up and down completely randomly.

Pair Corralation between Triton International and Solventum Corp

Assuming the 90 days trading horizon Triton International Limited is expected to under-perform the Solventum Corp. But the preferred stock apears to be less risky and, when comparing its historical volatility, Triton International Limited is 3.36 times less risky than Solventum Corp. The preferred stock trades about -0.04 of its potential returns per unit of risk. The Solventum Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,026  in Solventum Corp on December 4, 2024 and sell it today you would earn a total of  1,022  from holding Solventum Corp or generate 14.55% return on investment over 90 days.

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

Triton International Limited  vs.  Solventum Corp

Triton International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Triton International Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Triton International is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Solventum Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Solventum Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent essential indicators, Solventum Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Triton International and Solventum Corp

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

The idea behind Triton International Limited and Solventum Corp 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.