Correlation Between THC and ABL

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

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

Diversification Opportunities for THC and ABL

-0.11

Correlation Coefficient

THC  ABL

Good diversification

The 3 months correlation between THC and ABL is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding THC and ABL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABL 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 ABL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABL has no effect on the direction of THC i.e., THC and ABL go up and down completely randomly.

Pair Corralation between THC and ABL

If you would invest  0.28  in THC on January 29, 2024 and sell it today you would lose (0.09) from holding THC or give up 31.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	4.55%
Values	Daily Returns

THC  vs.  ABL

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.

ABL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, ABL is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with THC and ABL

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

The idea behind THC and ABL 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.