Correlation Between TRON and FRM
Can any of the company-specific risk be diversified away by investing in both TRON and FRM 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 FRM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TRON and FRM, you can compare the effects of market volatilities on TRON and FRM 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 FRM. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRON and FRM.
Diversification Opportunities for TRON and FRM
Pay attention - limited upside
The 3 months correlation between TRON and FRM is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding TRON and FRM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FRM 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 FRM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FRM has no effect on the direction of TRON i.e., TRON and FRM go up and down completely randomly.
Pair Corralation between TRON and FRM
Assuming the 90 days trading horizon TRON is expected to generate 0.36 times more return on investment than FRM. However, TRON is 2.8 times less risky than FRM. It trades about 0.14 of its potential returns per unit of risk. FRM is currently generating about 0.01 per unit of risk. If you would invest 15.00 in TRON on August 31, 2024 and sell it today you would earn a total of 5.00 from holding TRON or generate 33.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
TRON vs. FRM
Performance |
| Timeline |
| TRON |
| FRM |
TRON and FRM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TRON and FRM
The main advantage of trading using opposite TRON and FRM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRON position performs unexpectedly, FRM 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 FRM will offset losses from the drop in FRM's long position.The idea behind TRON and FRM 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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