Correlation Between Tree Island and Ferrexpo PLC

Can any of the company-specific risk be diversified away by investing in both Tree Island and Ferrexpo PLC 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 Ferrexpo PLC 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 Ferrexpo PLC, you can compare the effects of market volatilities on Tree Island and Ferrexpo PLC 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 Ferrexpo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tree Island and Ferrexpo PLC.

Diversification Opportunities for Tree Island and Ferrexpo PLC

0.71

Correlation Coefficient

Tree Island  Ferrexpo PLC

Poor diversification

The 3 months correlation between Tree and Ferrexpo is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Tree Island Steel and Ferrexpo PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ferrexpo PLC 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 Ferrexpo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ferrexpo PLC has no effect on the direction of Tree Island i.e., Tree Island and Ferrexpo PLC go up and down completely randomly.

Pair Corralation between Tree Island and Ferrexpo PLC

Assuming the 90 days horizon Tree Island is expected to generate 54.18 times less return on investment than Ferrexpo PLC. But when comparing it to its historical volatility, Tree Island Steel is 3.19 times less risky than Ferrexpo PLC. It trades about 0.0 of its potential returns per unit of risk. Ferrexpo PLC is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  87.00  in Ferrexpo PLC on September 21, 2024 and sell it today you would earn a total of  68.00  from holding Ferrexpo PLC or generate 78.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	64.26%
Values	Daily Returns

Tree Island Steel  vs.  Ferrexpo PLC

Tree Island Steel

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tree Island Steel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Tree Island may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ferrexpo PLC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ferrexpo PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ferrexpo PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tree Island and Ferrexpo PLC

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

The idea behind Tree Island Steel and Ferrexpo PLC 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.