Correlation Between Tree House and Fertilizers

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

By analyzing existing cross correlation between Tree House Education and Fertilizers and Chemicals, you can compare the effects of market volatilities on Tree House and Fertilizers 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 Tree House with a short position of Fertilizers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tree House and Fertilizers.

Diversification Opportunities for Tree House and Fertilizers

0.6

Correlation Coefficient

Tree House  Fertilizers

Poor diversification

The 3 months correlation between Tree and Fertilizers is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Tree House Education and Fertilizers and Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fertilizers and Chemicals and Tree House 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 Tree House Education are associated (or correlated) with Fertilizers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fertilizers and Chemicals has no effect on the direction of Tree House i.e., Tree House and Fertilizers go up and down completely randomly.

Pair Corralation between Tree House and Fertilizers

Assuming the 90 days trading horizon Tree House Education is expected to under-perform the Fertilizers. In addition to that, Tree House is 1.0 times more volatile than Fertilizers and Chemicals. It trades about -0.08 of its total potential returns per unit of risk. Fertilizers and Chemicals is currently generating about 0.01 per unit of volatility. If you would invest  101,359  in Fertilizers and Chemicals on September 21, 2024 and sell it today you would lose (1,044) from holding Fertilizers and Chemicals or give up 1.03% of portfolio value over 90 days.

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

Tree House Education  vs.  Fertilizers and Chemicals

Tree House Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tree House Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Fertilizers and Chemicals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fertilizers and Chemicals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fertilizers is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tree House and Fertilizers

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

The idea behind Tree House Education and Fertilizers and Chemicals 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.