Correlation Between TAC Consumer and Home Pottery

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

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

Diversification Opportunities for TAC Consumer and Home Pottery

0.53

Correlation Coefficient

TAC Consumer  Home Pottery

Very weak diversification

The 3 months correlation between TAC and Home is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding TAC Consumer Public and Home Pottery Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Pottery Public and TAC Consumer 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 TAC Consumer Public are associated (or correlated) with Home Pottery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Pottery Public has no effect on the direction of TAC Consumer i.e., TAC Consumer and Home Pottery go up and down completely randomly.

Pair Corralation between TAC Consumer and Home Pottery

Assuming the 90 days trading horizon TAC Consumer Public is expected to under-perform the Home Pottery. But the stock apears to be less risky and, when comparing its historical volatility, TAC Consumer Public is 2.05 times less risky than Home Pottery. The stock trades about -0.08 of its potential returns per unit of risk. The Home Pottery Public is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  47.00  in Home Pottery Public on September 15, 2024 and sell it today you would lose (2.00) from holding Home Pottery Public or give up 4.26% of portfolio value over 90 days.

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

TAC Consumer Public  vs.  Home Pottery Public

TAC Consumer Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TAC Consumer Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, TAC Consumer is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Home Pottery Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Pottery Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Home Pottery is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with TAC Consumer and Home Pottery

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

The idea behind TAC Consumer Public and Home Pottery Public 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.