Correlation Between Treasury Wine and GENERAL

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

By analyzing existing cross correlation between Treasury Wine Estates and GENERAL ELEC CAP, you can compare the effects of market volatilities on Treasury Wine and GENERAL 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 Treasury Wine with a short position of GENERAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Treasury Wine and GENERAL.

Diversification Opportunities for Treasury Wine and GENERAL

-0.45

Correlation Coefficient

Treasury Wine  GENERAL

Very good diversification

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

Pair Corralation between Treasury Wine and GENERAL

Assuming the 90 days horizon Treasury Wine Estates is expected to under-perform the GENERAL. But the pink sheet apears to be less risky and, when comparing its historical volatility, Treasury Wine Estates is 3.1 times less risky than GENERAL. The pink sheet trades about -0.15 of its potential returns per unit of risk. The GENERAL ELEC CAP is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  9,287  in GENERAL ELEC CAP on October 12, 2024 and sell it today you would lose (26.00) from holding GENERAL ELEC CAP or give up 0.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	55.0%
Values	Daily Returns

Treasury Wine Estates  vs.  GENERAL ELEC CAP

Treasury Wine Estates

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Treasury Wine Estates has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Treasury Wine and GENERAL

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

The idea behind Treasury Wine Estates and GENERAL ELEC CAP 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.