Correlation Between Stellar and TLOS

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

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

Diversification Opportunities for Stellar and TLOS

-0.55

Correlation Coefficient

Stellar  TLOS

Excellent diversification

The 3 months correlation between Stellar and TLOS is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Stellar and TLOS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TLOS and Stellar 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 Stellar are associated (or correlated) with TLOS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TLOS has no effect on the direction of Stellar i.e., Stellar and TLOS go up and down completely randomly.

Pair Corralation between Stellar and TLOS

Assuming the 90 days trading horizon Stellar is expected to generate 2.05 times more return on investment than TLOS. However, Stellar is 2.05 times more volatile than TLOS. It trades about 0.3 of its potential returns per unit of risk. TLOS is currently generating about -0.02 per unit of risk. If you would invest  9.16  in Stellar on September 3, 2024 and sell it today you would earn a total of  43.84  from holding Stellar or generate 478.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Stellar  vs.  TLOS

Stellar

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Stellar are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Stellar exhibited solid returns over the last few months and may actually be approaching a breakup point.

TLOS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TLOS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, TLOS is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Stellar and TLOS

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

The idea behind Stellar and TLOS 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.