Correlation Between TRAVEL LEISURE and PETROSEA

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

By analyzing existing cross correlation between TRAVEL LEISURE DL 01 and PETROSEA, you can compare the effects of market volatilities on TRAVEL LEISURE and PETROSEA 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 TRAVEL LEISURE with a short position of PETROSEA. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRAVEL LEISURE and PETROSEA.

Diversification Opportunities for TRAVEL LEISURE and PETROSEA

0.8

Correlation Coefficient

TRAVEL LEISURE  PETROSEA

Very poor diversification

The 3 months correlation between TRAVEL and PETROSEA is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding TRAVEL LEISURE DL 01 and PETROSEA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PETROSEA and TRAVEL LEISURE 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 TRAVEL LEISURE DL 01 are associated (or correlated) with PETROSEA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PETROSEA has no effect on the direction of TRAVEL LEISURE i.e., TRAVEL LEISURE and PETROSEA go up and down completely randomly.

Pair Corralation between TRAVEL LEISURE and PETROSEA

Assuming the 90 days trading horizon TRAVEL LEISURE is expected to generate 5.38 times less return on investment than PETROSEA. But when comparing it to its historical volatility, TRAVEL LEISURE DL 01 is 3.15 times less risky than PETROSEA. It trades about 0.05 of its potential returns per unit of risk. PETROSEA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  24.00  in PETROSEA on September 29, 2024 and sell it today you would earn a total of  141.00  from holding PETROSEA or generate 587.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

TRAVEL LEISURE DL 01  vs.  PETROSEA

TRAVEL LEISURE DL

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TRAVEL LEISURE DL 01 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TRAVEL LEISURE reported solid returns over the last few months and may actually be approaching a breakup point.

PETROSEA

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PETROSEA are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, PETROSEA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TRAVEL LEISURE and PETROSEA

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

The idea behind TRAVEL LEISURE DL 01 and PETROSEA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.