Correlation Between Tandy Leather and Polished

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

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

Diversification Opportunities for Tandy Leather and Polished

0.5

Correlation Coefficient

Tandy Leather  Polished

Very weak diversification

The 3 months correlation between Tandy and Polished is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Tandy Leather Factory and Polished in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polished and Tandy Leather 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 Tandy Leather Factory are associated (or correlated) with Polished. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polished has no effect on the direction of Tandy Leather i.e., Tandy Leather and Polished go up and down completely randomly.

Pair Corralation between Tandy Leather and Polished

Considering the 90-day investment horizon Tandy Leather is expected to generate 2.64 times less return on investment than Polished. But when comparing it to its historical volatility, Tandy Leather Factory is 3.02 times less risky than Polished. It trades about 0.02 of its potential returns per unit of risk. Polished is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  62.00  in Polished on September 24, 2024 and sell it today you would lose (8.00) from holding Polished or give up 12.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	28.17%
Values	Daily Returns

Tandy Leather Factory  vs.  Polished

Tandy Leather Factory

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tandy Leather Factory are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating essential indicators, Tandy Leather reported solid returns over the last few months and may actually be approaching a breakup point.

Polished

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Tandy Leather and Polished

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

The idea behind Tandy Leather Factory and Polished 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.