Correlation Between GSC and TNB

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

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

Diversification Opportunities for GSC and TNB

-0.71

Correlation Coefficient

GSC  TNB

Pay attention - limited upside

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

Pair Corralation between GSC and TNB

Assuming the 90 days trading horizon GSC is expected to generate 4.14 times less return on investment than TNB. But when comparing it to its historical volatility, GSC is 4.45 times less risky than TNB. It trades about 0.04 of its potential returns per unit of risk. TNB is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.45  in TNB on January 30, 2024 and sell it today you would lose (0.45) from holding TNB or give up 98.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	68.9%
Values	Daily Returns

GSC  vs.  TNB

GSC

Risk-Adjusted Performance

0 of 100

Very Weak

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

TNB

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TNB are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, TNB exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GSC and TNB

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

The idea behind GSC and TNB 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.