Correlation Between Tidewater and TomCo Energy

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

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

Diversification Opportunities for Tidewater and TomCo Energy

-0.92

Correlation Coefficient

Tidewater  TomCo Energy

Pay attention - limited upside

The 3 months correlation between Tidewater and TomCo is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding Tidewater and TomCo Energy Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TomCo Energy Plc and Tidewater 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 Tidewater are associated (or correlated) with TomCo Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TomCo Energy Plc has no effect on the direction of Tidewater i.e., Tidewater and TomCo Energy go up and down completely randomly.

Pair Corralation between Tidewater and TomCo Energy

Considering the 90-day investment horizon Tidewater is expected to generate 39.37 times less return on investment than TomCo Energy. But when comparing it to its historical volatility, Tidewater is 33.15 times less risky than TomCo Energy. It trades about 0.09 of its potential returns per unit of risk. TomCo Energy Plc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.16  in TomCo Energy Plc on January 24, 2024 and sell it today you would earn a total of  1.37  from holding TomCo Energy Plc or generate 856.25% return on investment over 90 days.

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

Tidewater  vs.  TomCo Energy Plc

Tidewater

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tidewater are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Tidewater showed solid returns over the last few months and may actually be approaching a breakup point.

TomCo Energy Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TomCo Energy Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, TomCo Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tidewater and TomCo Energy

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

The idea behind Tidewater and TomCo Energy 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.