Correlation Between TWC Enterprises and IFabric Corp

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

By analyzing existing cross correlation between TWC Enterprises and iFabric Corp, you can compare the effects of market volatilities on TWC Enterprises and IFabric Corp 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 TWC Enterprises with a short position of IFabric Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of TWC Enterprises and IFabric Corp.

Diversification Opportunities for TWC Enterprises and IFabric Corp

-0.44

Correlation Coefficient

TWC Enterprises  IFabric Corp

Very good diversification

The 3 months correlation between TWC and IFabric is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding TWC Enterprises and iFabric Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iFabric Corp and TWC Enterprises 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 TWC Enterprises are associated (or correlated) with IFabric Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iFabric Corp has no effect on the direction of TWC Enterprises i.e., TWC Enterprises and IFabric Corp go up and down completely randomly.

Pair Corralation between TWC Enterprises and IFabric Corp

Assuming the 90 days trading horizon TWC Enterprises is expected to under-perform the IFabric Corp. But the stock apears to be less risky and, when comparing its historical volatility, TWC Enterprises is 1.76 times less risky than IFabric Corp. The stock trades about -0.02 of its potential returns per unit of risk. The iFabric Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  106.00  in iFabric Corp on September 27, 2024 and sell it today you would lose (1.00) from holding iFabric Corp or give up 0.94% of portfolio value over 90 days.

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

TWC Enterprises  vs.  iFabric Corp

TWC Enterprises

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TWC Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, TWC Enterprises is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iFabric Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iFabric Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IFabric Corp is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with TWC Enterprises and IFabric Corp

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

The idea behind TWC Enterprises and iFabric Corp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.