Correlation Between Tree Island and Sparx Technology

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

Diversification Opportunities for Tree Island and Sparx Technology

0.9

Correlation Coefficient

Tree Island  Sparx Technology

Almost no diversification

The 3 months correlation between Tree and Sparx is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Tree Island Steel and Sparx Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparx Technology 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 Sparx Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparx Technology has no effect on the direction of Tree Island i.e., Tree Island and Sparx Technology go up and down completely randomly.

Pair Corralation between Tree Island and Sparx Technology

Assuming the 90 days trading horizon Tree Island is expected to generate 1.68 times less return on investment than Sparx Technology. In addition to that, Tree Island is 1.58 times more volatile than Sparx Technology. It trades about 0.12 of its total potential returns per unit of risk. Sparx Technology is currently generating about 0.32 per unit of volatility. If you would invest  2,041  in Sparx Technology on September 7, 2024 and sell it today you would earn a total of  779.00  from holding Sparx Technology or generate 38.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Tree Island Steel  vs.  Sparx Technology

Tree Island Steel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tree Island Steel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, Tree Island displayed solid returns over the last few months and may actually be approaching a breakup point.

Sparx Technology

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sparx Technology are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Sparx Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tree Island and Sparx Technology

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

The idea behind Tree Island Steel and Sparx Technology 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.