Correlation Between AMS Small and Tetragon Financial

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

By analyzing existing cross correlation between AMS Small Cap and Tetragon Financial Group, you can compare the effects of market volatilities on AMS Small and Tetragon Financial 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 AMS Small with a short position of Tetragon Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of AMS Small and Tetragon Financial.

Diversification Opportunities for AMS Small and Tetragon Financial

-0.12

Correlation Coefficient

AMS Small  Tetragon Financial

Good diversification

The 3 months correlation between AMS and Tetragon is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding AMS Small Cap and Tetragon Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tetragon Financial and AMS Small 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 AMS Small Cap are associated (or correlated) with Tetragon Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tetragon Financial has no effect on the direction of AMS Small i.e., AMS Small and Tetragon Financial go up and down completely randomly.

Pair Corralation between AMS Small and Tetragon Financial

Assuming the 90 days trading horizon AMS Small is expected to generate 17.7 times less return on investment than Tetragon Financial. But when comparing it to its historical volatility, AMS Small Cap is 2.51 times less risky than Tetragon Financial. It trades about 0.03 of its potential returns per unit of risk. Tetragon Financial Group is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,012  in Tetragon Financial Group on September 19, 2024 and sell it today you would earn a total of  388.00  from holding Tetragon Financial Group or generate 38.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

AMS Small Cap  vs.  Tetragon Financial Group

Pair Trading with AMS Small and Tetragon Financial

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

The idea behind AMS Small Cap and Tetragon Financial Group 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.