Correlation Between AEON and TNB
Can any of the company-specific risk be diversified away by investing in both AEON and TNB 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 AEON and TNB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AEON and TNB, you can compare the effects of market volatilities on AEON and TNB 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 AEON with a short position of TNB. Check out your portfolio center. Please also check ongoing floating volatility patterns of AEON and TNB.
Diversification Opportunities for AEON and TNB
No risk reduction
The 3 months correlation between AEON and TNB is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding AEON and TNB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TNB and AEON 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 AEON are associated (or correlated) with TNB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TNB has no effect on the direction of AEON i.e., AEON and TNB go up and down completely randomly.
Pair Corralation between AEON and TNB
Assuming the 90 days trading horizon AEON is expected to generate 2.04 times more return on investment than TNB. However, AEON is 2.04 times more volatile than TNB. It trades about 0.09 of its potential returns per unit of risk. TNB is currently generating about -0.02 per unit of risk. If you would invest 8.76 in AEON on November 5, 2024 and sell it today you would earn a total of 17.24 from holding AEON or generate 196.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
AEON vs. TNB
Performance |
| Timeline |
| AEON |
| TNB |
AEON and TNB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AEON and TNB
The main advantage of trading using opposite AEON and TNB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AEON position performs unexpectedly, TNB 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 TNB will offset losses from the drop in TNB's long position.The idea behind AEON and TNB 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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