Correlation Between Total Soft and TES Co

Can any of the company-specific risk be diversified away by investing in both Total Soft and TES Co 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 Total Soft and TES Co into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Total Soft Bank and TES Co, you can compare the effects of market volatilities on Total Soft and TES Co 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 Total Soft with a short position of TES Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Total Soft and TES Co.

Diversification Opportunities for Total Soft and TES Co

-0.43

Correlation Coefficient

Total Soft  TES Co

Very good diversification

The 3 months correlation between Total and TES is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Total Soft Bank and TES Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TES Co and Total Soft 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 Total Soft Bank are associated (or correlated) with TES Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TES Co has no effect on the direction of Total Soft i.e., Total Soft and TES Co go up and down completely randomly.

Pair Corralation between Total Soft and TES Co

Assuming the 90 days trading horizon Total Soft Bank is expected to generate 4.74 times more return on investment than TES Co. However, Total Soft is 4.74 times more volatile than TES Co. It trades about 0.3 of its potential returns per unit of risk. TES Co is currently generating about 0.09 per unit of risk. If you would invest  436,000  in Total Soft Bank on September 22, 2024 and sell it today you would earn a total of  446,000  from holding Total Soft Bank or generate 102.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Total Soft Bank  vs.  TES Co

Total Soft Bank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Total Soft Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Total Soft sustained solid returns over the last few months and may actually be approaching a breakup point.

TES Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TES Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, TES Co is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Total Soft and TES Co

The main advantage of trading using opposite Total Soft and TES Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Total Soft position performs unexpectedly, TES Co 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 TES Co will offset losses from the drop in TES Co's long position.

The idea behind Total Soft Bank and TES Co 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..