Correlation Between Terminal X and C Mer

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

By analyzing existing cross correlation between Terminal X Online and C Mer Industries, you can compare the effects of market volatilities on Terminal X and C Mer 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 Terminal X with a short position of C Mer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Terminal X and C Mer.

Diversification Opportunities for Terminal X and C Mer

0.93

Correlation Coefficient

Terminal X  C Mer

Almost no diversification

The 3 months correlation between Terminal and CMER is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Terminal X Online and C Mer Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on C Mer Industries and Terminal X 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 Terminal X Online are associated (or correlated) with C Mer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of C Mer Industries has no effect on the direction of Terminal X i.e., Terminal X and C Mer go up and down completely randomly.

Pair Corralation between Terminal X and C Mer

Assuming the 90 days trading horizon Terminal X is expected to generate 1.01 times less return on investment than C Mer. But when comparing it to its historical volatility, Terminal X Online is 2.39 times less risky than C Mer. It trades about 0.57 of its potential returns per unit of risk. C Mer Industries is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  171,900  in C Mer Industries on September 16, 2024 and sell it today you would earn a total of  94,100  from holding C Mer Industries or generate 54.74% return on investment over 90 days.

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

Terminal X Online  vs.  C Mer Industries

Terminal X Online

Risk-Adjusted Performance

44 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in Terminal X Online are ranked lower than 44 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Terminal X sustained solid returns over the last few months and may actually be approaching a breakup point.

C Mer Industries

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in C Mer Industries are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, C Mer sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Terminal X and C Mer

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

The idea behind Terminal X Online and C Mer Industries 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.