Correlation Between Wah Nobel and TPL Insurance

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

By analyzing existing cross correlation between Wah Nobel Chemicals and TPL Insurance, you can compare the effects of market volatilities on Wah Nobel and TPL Insurance 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 Wah Nobel with a short position of TPL Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wah Nobel and TPL Insurance.

Diversification Opportunities for Wah Nobel and TPL Insurance

0.68

Correlation Coefficient

Wah Nobel  TPL Insurance

Poor diversification

The 3 months correlation between Wah and TPL is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Wah Nobel Chemicals and TPL Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPL Insurance and Wah Nobel 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 Wah Nobel Chemicals are associated (or correlated) with TPL Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPL Insurance has no effect on the direction of Wah Nobel i.e., Wah Nobel and TPL Insurance go up and down completely randomly.

Pair Corralation between Wah Nobel and TPL Insurance

Assuming the 90 days trading horizon Wah Nobel Chemicals is expected to generate 1.09 times more return on investment than TPL Insurance. However, Wah Nobel is 1.09 times more volatile than TPL Insurance. It trades about 0.01 of its potential returns per unit of risk. TPL Insurance is currently generating about -0.04 per unit of risk. If you would invest  23,223  in Wah Nobel Chemicals on December 4, 2024 and sell it today you would lose (472.00) from holding Wah Nobel Chemicals or give up 2.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Wah Nobel Chemicals  vs.  TPL Insurance

Wah Nobel Chemicals

Risk-Adjusted Performance

Very Weak

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

TPL Insurance

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Wah Nobel and TPL Insurance

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

The idea behind Wah Nobel Chemicals and TPL Insurance 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.