Correlation Between Tokai Carbon and Microfriend

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

By analyzing existing cross correlation between Tokai Carbon Korea and Microfriend, you can compare the effects of market volatilities on Tokai Carbon and Microfriend 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 Tokai Carbon with a short position of Microfriend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tokai Carbon and Microfriend.

Diversification Opportunities for Tokai Carbon and Microfriend

0.11

Correlation Coefficient

Tokai Carbon  Microfriend

Average diversification

The 3 months correlation between Tokai and Microfriend is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Tokai Carbon Korea and Microfriend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microfriend and Tokai Carbon 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 Tokai Carbon Korea are associated (or correlated) with Microfriend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microfriend has no effect on the direction of Tokai Carbon i.e., Tokai Carbon and Microfriend go up and down completely randomly.

Pair Corralation between Tokai Carbon and Microfriend

Assuming the 90 days trading horizon Tokai Carbon Korea is expected to under-perform the Microfriend. But the stock apears to be less risky and, when comparing its historical volatility, Tokai Carbon Korea is 2.72 times less risky than Microfriend. The stock trades about -0.24 of its potential returns per unit of risk. The Microfriend is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  337,500  in Microfriend on August 31, 2024 and sell it today you would lose (30,000) from holding Microfriend or give up 8.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Tokai Carbon Korea  vs.  Microfriend

Tokai Carbon Korea

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tokai Carbon Korea has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Microfriend

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Tokai Carbon and Microfriend

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

The idea behind Tokai Carbon Korea and Microfriend 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.

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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.