Correlation Between TRON and Central Industries

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

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

Diversification Opportunities for TRON and Central Industries

0.41

Correlation Coefficient

TRON  Central Industries

Very weak diversification

The 3 months correlation between TRON and Central is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding TRON and Central Industries PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Industries PLC and TRON 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 TRON are associated (or correlated) with Central Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Industries PLC has no effect on the direction of TRON i.e., TRON and Central Industries go up and down completely randomly.

Pair Corralation between TRON and Central Industries

Assuming the 90 days trading horizon TRON is expected to under-perform the Central Industries. In addition to that, TRON is 1.45 times more volatile than Central Industries PLC. It trades about -0.11 of its total potential returns per unit of risk. Central Industries PLC is currently generating about 0.34 per unit of volatility. If you would invest  12,875  in Central Industries PLC on October 11, 2024 and sell it today you would earn a total of  2,625  from holding Central Industries PLC or generate 20.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.91%
Values	Daily Returns

TRON  vs.  Central Industries PLC

TRON

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TRON are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, TRON exhibited solid returns over the last few months and may actually be approaching a breakup point.

Central Industries PLC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Central Industries PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Central Industries sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TRON and Central Industries

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

The idea behind TRON and Central Industries PLC 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.