Correlation Between Holiday Entertainment and TMP Steel

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

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

Diversification Opportunities for Holiday Entertainment and TMP Steel

0.77

Correlation Coefficient

Holiday Entertainment  TMP Steel

Poor diversification

The 3 months correlation between Holiday and TMP is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Holiday Entertainment Co and TMP Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMP Steel and Holiday Entertainment 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 Holiday Entertainment Co are associated (or correlated) with TMP Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMP Steel has no effect on the direction of Holiday Entertainment i.e., Holiday Entertainment and TMP Steel go up and down completely randomly.

Pair Corralation between Holiday Entertainment and TMP Steel

Assuming the 90 days trading horizon Holiday Entertainment Co is expected to under-perform the TMP Steel. But the stock apears to be less risky and, when comparing its historical volatility, Holiday Entertainment Co is 1.95 times less risky than TMP Steel. The stock trades about -0.06 of its potential returns per unit of risk. The TMP Steel is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,775  in TMP Steel on September 4, 2024 and sell it today you would earn a total of  85.00  from holding TMP Steel or generate 3.06% return on investment over 90 days.

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

Holiday Entertainment Co  vs.  TMP Steel

Holiday Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Holiday Entertainment Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Holiday Entertainment is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

TMP Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TMP Steel 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.

Pair Trading with Holiday Entertainment and TMP Steel

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

The idea behind Holiday Entertainment Co and TMP Steel 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.