Correlation Between Tree Island and Asiabasemetals

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

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

Diversification Opportunities for Tree Island and Asiabasemetals

0.45

Correlation Coefficient

Tree Island  Asiabasemetals

Very weak diversification

The 3 months correlation between Tree and Asiabasemetals is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Tree Island Steel and Asiabasemetals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asiabasemetals and Tree Island 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 Island Steel are associated (or correlated) with Asiabasemetals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asiabasemetals has no effect on the direction of Tree Island i.e., Tree Island and Asiabasemetals go up and down completely randomly.

Pair Corralation between Tree Island and Asiabasemetals

Assuming the 90 days trading horizon Tree Island Steel is expected to generate 0.37 times more return on investment than Asiabasemetals. However, Tree Island Steel is 2.7 times less risky than Asiabasemetals. It trades about -0.11 of its potential returns per unit of risk. Asiabasemetals is currently generating about -0.05 per unit of risk. If you would invest  303.00  in Tree Island Steel on December 23, 2024 and sell it today you would lose (48.00) from holding Tree Island Steel or give up 15.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Tree Island Steel  vs.  Asiabasemetals

Tree Island Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tree Island Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's essential indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Asiabasemetals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Asiabasemetals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Tree Island and Asiabasemetals

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

The idea behind Tree Island Steel and Asiabasemetals 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.