Correlation Between Tri Continental and 3i Group

Can any of the company-specific risk be diversified away by investing in both Tri Continental and 3i Group 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 Tri Continental and 3i Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tri Continental Closed and 3i Group plc, you can compare the effects of market volatilities on Tri Continental and 3i Group 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 Tri Continental with a short position of 3i Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tri Continental and 3i Group.

Diversification Opportunities for Tri Continental and 3i Group

0.61

Correlation Coefficient

Tri Continental  3i Group

Poor diversification

The 3 months correlation between Tri and TGOPF is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Tri Continental Closed and 3i Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3i Group plc and Tri Continental 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 Tri Continental Closed are associated (or correlated) with 3i Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3i Group plc has no effect on the direction of Tri Continental i.e., Tri Continental and 3i Group go up and down completely randomly.

Pair Corralation between Tri Continental and 3i Group

Allowing for the 90-day total investment horizon Tri Continental Closed is expected to under-perform the 3i Group. In addition to that, Tri Continental is 1.05 times more volatile than 3i Group plc. It trades about -0.08 of its total potential returns per unit of risk. 3i Group plc is currently generating about 0.04 per unit of volatility. If you would invest  3,564  in 3i Group plc on February 5, 2024 and sell it today you would earn a total of  20.00  from holding 3i Group plc or generate 0.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Tri Continental Closed  vs.  3i Group plc

Tri Continental Closed

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tri Continental Closed are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Tri Continental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

3i Group plc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in 3i Group plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, 3i Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tri Continental and 3i Group

The main advantage of trading using opposite Tri Continental and 3i Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tri Continental position performs unexpectedly, 3i Group 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 3i Group will offset losses from the drop in 3i Group's long position.

The idea behind Tri Continental Closed and 3i Group 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.