Correlation Between Sony Corp and TCL Electronics

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

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

Diversification Opportunities for Sony Corp and TCL Electronics

-0.7

Correlation Coefficient

Sony Corp  TCL Electronics

Excellent diversification

The 3 months correlation between Sony and TCL is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Sony Corp and TCL Electronics Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TCL Electronics Holdings and Sony Corp 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 Sony Corp are associated (or correlated) with TCL Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TCL Electronics Holdings has no effect on the direction of Sony Corp i.e., Sony Corp and TCL Electronics go up and down completely randomly.

Pair Corralation between Sony Corp and TCL Electronics

Assuming the 90 days horizon Sony Corp is expected to generate 15.63 times less return on investment than TCL Electronics. But when comparing it to its historical volatility, Sony Corp is 2.71 times less risky than TCL Electronics. It trades about 0.01 of its potential returns per unit of risk. TCL Electronics Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  26.00  in TCL Electronics Holdings on March 12, 2024 and sell it today you would earn a total of  51.00  from holding TCL Electronics Holdings or generate 196.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.57%
Values	Daily Returns

Sony Corp  vs.  TCL Electronics Holdings

Sony Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sony Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, Sony Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

TCL Electronics Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TCL Electronics Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, TCL Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sony Corp and TCL Electronics

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

The idea behind Sony Corp and TCL Electronics Holdings 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.