Correlation Between THC and Portal

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

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

Diversification Opportunities for THC and Portal

0.03

Correlation Coefficient

THC  Portal

Significant diversification

The 3 months correlation between THC and Portal is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding THC and Portal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Portal and THC 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 THC are associated (or correlated) with Portal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Portal has no effect on the direction of THC i.e., THC and Portal go up and down completely randomly.

Pair Corralation between THC and Portal

Assuming the 90 days trading horizon THC is expected to generate 2.96 times more return on investment than Portal. However, THC is 2.96 times more volatile than Portal. It trades about 0.02 of its potential returns per unit of risk. Portal is currently generating about -0.41 per unit of risk. If you would invest  0.28  in THC on January 29, 2024 and sell it today you would lose (0.10) from holding THC or give up 34.43% of portfolio value over 90 days.

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

THC  vs.  Portal

THC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in THC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, THC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Portal

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Portal are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Portal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with THC and Portal

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

The idea behind THC and Portal 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.