Correlation Between Transport International and Gamma Communications

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

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

Diversification Opportunities for Transport International and Gamma Communications

0.26

Correlation Coefficient

Transport International  Gamma Communications

Modest diversification

The 3 months correlation between Transport and Gamma is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Transport International Holdin and Gamma Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gamma Communications plc and Transport International 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 Transport International Holdings are associated (or correlated) with Gamma Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gamma Communications plc has no effect on the direction of Transport International i.e., Transport International and Gamma Communications go up and down completely randomly.

Pair Corralation between Transport International and Gamma Communications

Assuming the 90 days horizon Transport International is expected to generate 1.49 times less return on investment than Gamma Communications. But when comparing it to its historical volatility, Transport International Holdings is 1.06 times less risky than Gamma Communications. It trades about 0.03 of its potential returns per unit of risk. Gamma Communications plc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,784  in Gamma Communications plc on August 30, 2024 and sell it today you would earn a total of  96.00  from holding Gamma Communications plc or generate 5.38% return on investment over 90 days.

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

Transport International Holdin  vs.  Gamma Communications plc

Transport International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Transport International Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Transport International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Gamma Communications plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gamma Communications plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gamma Communications may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Transport International and Gamma Communications

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

The idea behind Transport International Holdings and Gamma Communications plc 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.