Correlation Between TRON and ATP
Can any of the company-specific risk be diversified away by investing in both TRON and ATP 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 TRON and ATP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TRON and ATP, you can compare the effects of market volatilities on TRON and ATP 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 TRON with a short position of ATP. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRON and ATP.
Diversification Opportunities for TRON and ATP
Excellent diversification
The 3 months correlation between TRON and ATP is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding TRON and ATP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATP and TRON 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 TRON are associated (or correlated) with ATP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATP has no effect on the direction of TRON i.e., TRON and ATP go up and down completely randomly.
Pair Corralation between TRON and ATP
Assuming the 90 days trading horizon TRON is expected to generate 7.1 times less return on investment than ATP. But when comparing it to its historical volatility, TRON is 15.12 times less risky than ATP. It trades about 0.13 of its potential returns per unit of risk. ATP is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 0.01 in ATP on August 27, 2024 and sell it today you would lose (0.01) from holding ATP or give up 69.05% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
TRON vs. ATP
Performance |
| Timeline |
| TRON |
| ATP |
TRON and ATP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TRON and ATP
The main advantage of trading using opposite TRON and ATP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRON position performs unexpectedly, ATP 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 ATP will offset losses from the drop in ATP's long position.The idea behind TRON and ATP 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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