Correlation Between CMC Magnetics and Tecom

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

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

Diversification Opportunities for CMC Magnetics and Tecom

-0.3

Correlation Coefficient

CMC Magnetics  Tecom

Very good diversification

The 3 months correlation between CMC and Tecom is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding CMC Magnetics Corp and Tecom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tecom and CMC Magnetics 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 CMC Magnetics Corp are associated (or correlated) with Tecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tecom has no effect on the direction of CMC Magnetics i.e., CMC Magnetics and Tecom go up and down completely randomly.

Pair Corralation between CMC Magnetics and Tecom

Assuming the 90 days trading horizon CMC Magnetics Corp is expected to under-perform the Tecom. But the stock apears to be less risky and, when comparing its historical volatility, CMC Magnetics Corp is 3.13 times less risky than Tecom. The stock trades about -0.11 of its potential returns per unit of risk. The Tecom Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,535  in Tecom Co on September 14, 2024 and sell it today you would earn a total of  35.00  from holding Tecom Co or generate 2.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

CMC Magnetics Corp  vs.  Tecom Co

CMC Magnetics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CMC Magnetics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Tecom

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tecom Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Tecom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with CMC Magnetics and Tecom

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

The idea behind CMC Magnetics Corp and Tecom 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.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.