Correlation Between UPP and TNB
Can any of the company-specific risk be diversified away by investing in both UPP 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 UPP and TNB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between UPP and TNB, you can compare the effects of market volatilities on UPP 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 UPP with a short position of TNB. Check out your portfolio center. Please also check ongoing floating volatility patterns of UPP and TNB.
Diversification Opportunities for UPP and TNB
Poor diversification
The 3 months correlation between UPP and TNB is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding UPP and TNB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TNB and UPP 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 UPP 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 UPP i.e., UPP and TNB go up and down completely randomly.
Pair Corralation between UPP and TNB
Assuming the 90 days trading horizon UPP is expected to generate 6.43 times more return on investment than TNB. However, UPP is 6.43 times more volatile than TNB. It trades about 0.16 of its potential returns per unit of risk. TNB is currently generating about 0.38 per unit of risk. If you would invest 6.59 in UPP on September 4, 2024 and sell it today you would earn a total of 2.23 from holding UPP or generate 33.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
UPP vs. TNB
Performance |
| Timeline |
| UPP |
| TNB |
UPP and TNB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with UPP and TNB
The main advantage of trading using opposite UPP and TNB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UPP 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 UPP 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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