Correlation Between TRON and FF European
Can any of the company-specific risk be diversified away by investing in both TRON and FF European 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 FF European into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TRON and FF European, you can compare the effects of market volatilities on TRON and FF European 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 FF European. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRON and FF European.
Diversification Opportunities for TRON and FF European
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between TRON and FJ2B is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding TRON and FF European in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FF European 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 FF European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FF European has no effect on the direction of TRON i.e., TRON and FF European go up and down completely randomly.
Pair Corralation between TRON and FF European
Assuming the 90 days trading horizon TRON is expected to under-perform the FF European. In addition to that, TRON is 5.75 times more volatile than FF European. It trades about -0.25 of its total potential returns per unit of risk. FF European is currently generating about -0.03 per unit of volatility. If you would invest 2,013 in FF European on October 12, 2024 and sell it today you would lose (8.00) from holding FF European or give up 0.4% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 85.71% |
| Values | Daily Returns |
TRON vs. FF European
Performance |
| Timeline |
| TRON |
| FF European |
TRON and FF European Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TRON and FF European
The main advantage of trading using opposite TRON and FF European positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRON position performs unexpectedly, FF European 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 FF European will offset losses from the drop in FF European's long position.The idea behind TRON and FF European 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.| FF European vs. Groupama Entreprises N | FF European vs. Renaissance Europe C | FF European vs. Superior Plus Corp | FF European vs. Origin Agritech |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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