Correlation Between TLT and E Xim
Can any of the company-specific risk be diversified away by investing in both TLT and E Xim 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 TLT and E Xim into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TLT and E Xim IT, you can compare the effects of market volatilities on TLT and E Xim 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 TLT with a short position of E Xim. Check out your portfolio center. Please also check ongoing floating volatility patterns of TLT and E Xim.
Diversification Opportunities for TLT and E Xim
Very weak diversification
The 3 months correlation between TLT and EXM is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding TLT and E Xim IT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Xim IT and TLT 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 TLT are associated (or correlated) with E Xim. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Xim IT has no effect on the direction of TLT i.e., TLT and E Xim go up and down completely randomly.
Pair Corralation between TLT and E Xim
Assuming the 90 days trading horizon TLT is expected to generate 3.61 times less return on investment than E Xim. But when comparing it to its historical volatility, TLT is 1.35 times less risky than E Xim. It trades about 0.04 of its potential returns per unit of risk. E Xim IT is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 12,000 in E Xim IT on August 26, 2024 and sell it today you would earn a total of 4,500 from holding E Xim IT or generate 37.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 50.0% |
| Values | Daily Returns |
TLT vs. E Xim IT
Performance |
| Timeline |
| TLT |
| E Xim IT |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
TLT and E Xim Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TLT and E Xim
The main advantage of trading using opposite TLT and E Xim positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TLT position performs unexpectedly, E Xim 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 E Xim will offset losses from the drop in E Xim's long position.The idea behind TLT and E Xim IT 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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