Correlation Between Touchstone Sands and Sentinel Small

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

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

Diversification Opportunities for Touchstone Sands and Sentinel Small

-0.56

Correlation Coefficient

Touchstone Sands  Sentinel Small

Excellent diversification

The 3 months correlation between Touchstone and Sentinel is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Touchstone Sands Capital and Sentinel Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sentinel Small and Touchstone Sands 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 Touchstone Sands Capital are associated (or correlated) with Sentinel Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sentinel Small has no effect on the direction of Touchstone Sands i.e., Touchstone Sands and Sentinel Small go up and down completely randomly.

Pair Corralation between Touchstone Sands and Sentinel Small

Assuming the 90 days horizon Touchstone Sands Capital is expected to generate 0.49 times more return on investment than Sentinel Small. However, Touchstone Sands Capital is 2.05 times less risky than Sentinel Small. It trades about -0.04 of its potential returns per unit of risk. Sentinel Small is currently generating about -0.12 per unit of risk. If you would invest  1,418  in Touchstone Sands Capital on September 19, 2024 and sell it today you would lose (7.00) from holding Touchstone Sands Capital or give up 0.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Touchstone Sands Capital  vs.  Sentinel Small

Touchstone Sands Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Touchstone Sands Capital has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Touchstone Sands is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sentinel Small

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Sentinel Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Sentinel Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Touchstone Sands and Sentinel Small

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

The idea behind Touchstone Sands Capital and Sentinel Small 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.