Correlation Between Tree Island and Lycos Energy

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

Diversification Opportunities for Tree Island and Lycos Energy

0.62

Correlation Coefficient

Tree Island  Lycos Energy

Poor diversification

The 3 months correlation between Tree and Lycos is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Tree Island Steel and Lycos Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lycos Energy 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 Lycos Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lycos Energy has no effect on the direction of Tree Island i.e., Tree Island and Lycos Energy go up and down completely randomly.

Pair Corralation between Tree Island and Lycos Energy

Assuming the 90 days trading horizon Tree Island Steel is expected to under-perform the Lycos Energy. But the stock apears to be less risky and, when comparing its historical volatility, Tree Island Steel is 1.25 times less risky than Lycos Energy. The stock trades about -0.13 of its potential returns per unit of risk. The Lycos Energy is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  250.00  in Lycos Energy on December 28, 2024 and sell it today you would lose (6.00) from holding Lycos Energy or give up 2.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Tree Island Steel  vs.  Lycos Energy

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.

Lycos Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lycos Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lycos Energy is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Tree Island and Lycos Energy

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

The idea behind Tree Island Steel and Lycos Energy 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.