Correlation Between Financial Street and State Grid

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

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

Diversification Opportunities for Financial Street and State Grid

0.83

Correlation Coefficient

Financial Street  State Grid

Very poor diversification

The 3 months correlation between Financial and State is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Financial Street Holdings and State Grid InformationCommunic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Grid Informati and Financial Street 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 Financial Street Holdings are associated (or correlated) with State Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Grid Informati has no effect on the direction of Financial Street i.e., Financial Street and State Grid go up and down completely randomly.

Pair Corralation between Financial Street and State Grid

Assuming the 90 days trading horizon Financial Street Holdings is expected to under-perform the State Grid. In addition to that, Financial Street is 1.03 times more volatile than State Grid InformationCommunication. It trades about -0.4 of its total potential returns per unit of risk. State Grid InformationCommunication is currently generating about -0.3 per unit of volatility. If you would invest  2,230  in State Grid InformationCommunication on October 4, 2024 and sell it today you would lose (339.00) from holding State Grid InformationCommunication or give up 15.2% of portfolio value over 90 days.

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

Financial Street Holdings  vs.  State Grid InformationCommunic

Financial Street Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Financial Street Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

State Grid Informati

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Grid InformationCommunication has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, State Grid is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Financial Street and State Grid

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

The idea behind Financial Street Holdings and State Grid InformationCommunication 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.