Correlation Between Therma Bright and ESE Entertainment

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

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

Diversification Opportunities for Therma Bright and ESE Entertainment

0.65

Correlation Coefficient

Therma Bright  ESE Entertainment

Poor diversification

The 3 months correlation between Therma and ESE is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Therma Bright and ESE Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESE Entertainment and Therma Bright 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 Therma Bright are associated (or correlated) with ESE Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESE Entertainment has no effect on the direction of Therma Bright i.e., Therma Bright and ESE Entertainment go up and down completely randomly.

Pair Corralation between Therma Bright and ESE Entertainment

Assuming the 90 days trading horizon Therma Bright is expected to under-perform the ESE Entertainment. In addition to that, Therma Bright is 1.37 times more volatile than ESE Entertainment. It trades about -0.11 of its total potential returns per unit of risk. ESE Entertainment is currently generating about -0.01 per unit of volatility. If you would invest  8.00  in ESE Entertainment on September 3, 2024 and sell it today you would lose (1.50) from holding ESE Entertainment or give up 18.75% of portfolio value over 90 days.

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

Therma Bright  vs.  ESE Entertainment

Therma Bright

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Therma Bright has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

ESE Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESE Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, ESE Entertainment is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Therma Bright and ESE Entertainment

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

The idea behind Therma Bright and ESE Entertainment 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.