Correlation Between Top Material and TK Chemical

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

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

Diversification Opportunities for Top Material and TK Chemical

0.71

Correlation Coefficient

Top Material  TK Chemical

Poor diversification

The 3 months correlation between Top and 104480 is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Top Material Co and TK Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TK Chemical and Top Material 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 Top Material Co are associated (or correlated) with TK Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TK Chemical has no effect on the direction of Top Material i.e., Top Material and TK Chemical go up and down completely randomly.

Pair Corralation between Top Material and TK Chemical

Assuming the 90 days trading horizon Top Material Co is expected to under-perform the TK Chemical. In addition to that, Top Material is 1.91 times more volatile than TK Chemical. It trades about -0.15 of its total potential returns per unit of risk. TK Chemical is currently generating about 0.0 per unit of volatility. If you would invest  135,400  in TK Chemical on September 14, 2024 and sell it today you would lose (1,300) from holding TK Chemical or give up 0.96% of portfolio value over 90 days.

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

Top Material Co  vs.  TK Chemical

Top Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Top Material Co 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

TK Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Top Material and TK Chemical

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

The idea behind Top Material Co and TK Chemical 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.