Correlation Between Tree Island and Dexterra

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

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

Diversification Opportunities for Tree Island and Dexterra

0.33

Correlation Coefficient

Tree Island  Dexterra

Weak diversification

The 3 months correlation between Tree and Dexterra is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Tree Island Steel and Dexterra Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dexterra Group and Tree Island 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 Island Steel are associated (or correlated) with Dexterra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dexterra Group has no effect on the direction of Tree Island i.e., Tree Island and Dexterra go up and down completely randomly.

Pair Corralation between Tree Island and Dexterra

Assuming the 90 days trading horizon Tree Island Steel is expected to generate 1.8 times more return on investment than Dexterra. However, Tree Island is 1.8 times more volatile than Dexterra Group. It trades about 0.11 of its potential returns per unit of risk. Dexterra Group is currently generating about 0.17 per unit of risk. If you would invest  261.00  in Tree Island Steel on September 5, 2024 and sell it today you would earn a total of  47.00  from holding Tree Island Steel or generate 18.01% return on investment over 90 days.

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

Tree Island Steel  vs.  Dexterra Group

Tree Island Steel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tree Island Steel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, Tree Island displayed solid returns over the last few months and may actually be approaching a breakup point.

Dexterra Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dexterra Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Dexterra displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tree Island and Dexterra

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

The idea behind Tree Island Steel and Dexterra Group 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.