Correlation Between Teuza A and Petrochemical

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

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

Diversification Opportunities for Teuza A and Petrochemical

0.25

Correlation Coefficient

Teuza A  Petrochemical

Modest diversification

The 3 months correlation between Teuza and Petrochemical is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Teuza A Fairchild and Petrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrochemical and Teuza A 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 Teuza A Fairchild are associated (or correlated) with Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrochemical has no effect on the direction of Teuza A i.e., Teuza A and Petrochemical go up and down completely randomly.

Pair Corralation between Teuza A and Petrochemical

Assuming the 90 days trading horizon Teuza A Fairchild is expected to generate 1.75 times more return on investment than Petrochemical. However, Teuza A is 1.75 times more volatile than Petrochemical. It trades about -0.01 of its potential returns per unit of risk. Petrochemical is currently generating about -0.27 per unit of risk. If you would invest  3,920  in Teuza A Fairchild on September 29, 2024 and sell it today you would lose (90.00) from holding Teuza A Fairchild or give up 2.3% of portfolio value over 90 days.

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

Teuza A Fairchild  vs.  Petrochemical

Teuza A Fairchild

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teuza A Fairchild has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Teuza A is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrochemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Teuza A and Petrochemical

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

The idea behind Teuza A Fairchild and Petrochemical 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.