Correlation Between TMP Steel and Tang Eng
Can any of the company-specific risk be diversified away by investing in both TMP Steel and Tang Eng 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 TMP Steel and Tang Eng into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TMP Steel and Tang Eng Iron, you can compare the effects of market volatilities on TMP Steel and Tang Eng 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 TMP Steel with a short position of Tang Eng. Check out your portfolio center. Please also check ongoing floating volatility patterns of TMP Steel and Tang Eng.
Diversification Opportunities for TMP Steel and Tang Eng
Very poor diversification
The 3 months correlation between TMP and Tang is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding TMP Steel and Tang Eng Iron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tang Eng Iron and TMP Steel 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 TMP Steel are associated (or correlated) with Tang Eng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tang Eng Iron has no effect on the direction of TMP Steel i.e., TMP Steel and Tang Eng go up and down completely randomly.
Pair Corralation between TMP Steel and Tang Eng
Assuming the 90 days trading horizon TMP Steel is expected to generate 1.96 times more return on investment than Tang Eng. However, TMP Steel is 1.96 times more volatile than Tang Eng Iron. It trades about 0.0 of its potential returns per unit of risk. Tang Eng Iron is currently generating about -0.02 per unit of risk. If you would invest 2,805 in TMP Steel on November 3, 2024 and sell it today you would lose (55.00) from holding TMP Steel or give up 1.96% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
TMP Steel vs. Tang Eng Iron
Performance |
| Timeline |
| TMP Steel |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Tang Eng Iron |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
TMP Steel and Tang Eng Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TMP Steel and Tang Eng
The main advantage of trading using opposite TMP Steel and Tang Eng positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TMP Steel position performs unexpectedly, Tang Eng 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 Tang Eng will offset losses from the drop in Tang Eng's long position.The idea behind TMP Steel and Tang Eng Iron 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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