Correlation Between Tile Shop and Partner Communications

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

By analyzing existing cross correlation between Tile Shop Holdings and Partner Communications, you can compare the effects of market volatilities on Tile Shop and Partner Communications 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 Tile Shop with a short position of Partner Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tile Shop and Partner Communications.

Diversification Opportunities for Tile Shop and Partner Communications

0.14

Correlation Coefficient

Tile Shop  Partner Communications

Average diversification

The 3 months correlation between Tile and Partner is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Tile Shop Holdings and Partner Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Partner Communications and Tile Shop 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 Tile Shop Holdings are associated (or correlated) with Partner Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Partner Communications has no effect on the direction of Tile Shop i.e., Tile Shop and Partner Communications go up and down completely randomly.

Pair Corralation between Tile Shop and Partner Communications

Given the investment horizon of 90 days Tile Shop Holdings is expected to under-perform the Partner Communications. But the stock apears to be less risky and, when comparing its historical volatility, Tile Shop Holdings is 2.98 times less risky than Partner Communications. The stock trades about -0.03 of its potential returns per unit of risk. The Partner Communications is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  498.00  in Partner Communications on December 28, 2024 and sell it today you would earn a total of  204.00  from holding Partner Communications or generate 40.96% return on investment over 90 days.

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

Tile Shop Holdings  vs.  Partner Communications

Tile Shop Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tile Shop Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Tile Shop is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Partner Communications

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Partner Communications are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Partner Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tile Shop and Partner Communications

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

The idea behind Tile Shop Holdings and Partner Communications 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.