Can any of the company-specific risk be diversified away by investing in both TuanChe ADR and Outbrain 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 TuanChe ADR and Outbrain into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TuanChe ADR and Outbrain, you can compare the effects of market volatilities on TuanChe ADR and Outbrain 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 TuanChe ADR with a short position of Outbrain. Check out your portfolio center. Please also check ongoing floating volatility patterns of TuanChe ADR and Outbrain.
Diversification Opportunities for TuanChe ADR and Outbrain
The 3 months correlation between TuanChe and Outbrain is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding TuanChe ADR and Outbrain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Outbrain and TuanChe ADR 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 TuanChe ADR are associated (or correlated) with Outbrain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Outbrain has no effect on the direction of TuanChe ADR i.e., TuanChe ADR and Outbrain go up and down completely randomly.
Allowing for the 90-day total investment horizon TuanChe ADR is expected to under-perform the Outbrain. In addition to that, TuanChe ADR is 1.69 times more volatile than Outbrain. It trades about -0.24 of its total potential returns per unit of risk. Outbrain is currently generating about -0.14 per unit of volatility. If you would invest 471.00 in Outbrain on September 2, 2023 and sell it today you would lose (90.00) from holding Outbrain or give up 19.11% of portfolio value over 90 days.
Over the last 90 days TuanChe ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
Over the last 90 days Outbrain has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in January 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
The main advantage of trading using opposite TuanChe ADR and Outbrain positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TuanChe ADR position performs unexpectedly, Outbrain 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 Outbrain will offset losses from the drop in Outbrain's long position.
The idea behind TuanChe ADR and Outbrain 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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