Correlation Between DENT and TNB

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

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

Diversification Opportunities for DENT and TNB

0.88

Correlation Coefficient

DENT  TNB

Very poor diversification

The 3 months correlation between DENT and TNB is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding DENT and TNB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TNB and DENT 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 DENT are associated (or correlated) with TNB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TNB has no effect on the direction of DENT i.e., DENT and TNB go up and down completely randomly.

Pair Corralation between DENT and TNB

Assuming the 90 days trading horizon DENT is expected to generate 1.17 times more return on investment than TNB. However, DENT is 1.17 times more volatile than TNB. It trades about 0.45 of its potential returns per unit of risk. TNB is currently generating about 0.33 per unit of risk. If you would invest  0.09  in DENT on August 30, 2024 and sell it today you would earn a total of  0.05  from holding DENT or generate 58.53% return on investment over 90 days.

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

DENT  vs.  TNB

DENT

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DENT are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, DENT exhibited solid returns over the last few months and may actually be approaching a breakup point.

TNB

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TNB are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, TNB exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DENT and TNB

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

The idea behind DENT and TNB 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.