Correlation Between Tree Island and Plaza Retail

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

Diversification Opportunities for Tree Island and Plaza Retail

-0.01

Correlation Coefficient

Tree Island  Plaza Retail

Good diversification

The 3 months correlation between Tree and Plaza is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Tree Island Steel and Plaza Retail REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plaza Retail REIT 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 Plaza Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plaza Retail REIT has no effect on the direction of Tree Island i.e., Tree Island and Plaza Retail go up and down completely randomly.

Pair Corralation between Tree Island and Plaza Retail

Assuming the 90 days trading horizon Tree Island Steel is expected to under-perform the Plaza Retail. In addition to that, Tree Island is 2.14 times more volatile than Plaza Retail REIT. It trades about -0.03 of its total potential returns per unit of risk. Plaza Retail REIT is currently generating about -0.01 per unit of volatility. If you would invest  374.00  in Plaza Retail REIT on November 29, 2024 and sell it today you would lose (3.00) from holding Plaza Retail REIT or give up 0.8% of portfolio value over 90 days.

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

Tree Island Steel  vs.  Plaza Retail REIT

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 very healthy essential indicators, Tree Island is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Plaza Retail REIT

Risk-Adjusted Performance

Very Weak

Over the last 90 days Plaza Retail REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Plaza Retail is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tree Island and Plaza Retail

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

The idea behind Tree Island Steel and Plaza Retail REIT 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.