Correlation Between SH Energy and Design

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

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

Diversification Opportunities for SH Energy and Design

0.36

Correlation Coefficient

SH Energy  Design

Weak diversification

The 3 months correlation between 002360 and Design is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding SH Energy Chemical and Design Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Design and SH Energy 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 SH Energy Chemical are associated (or correlated) with Design. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Design has no effect on the direction of SH Energy i.e., SH Energy and Design go up and down completely randomly.

Pair Corralation between SH Energy and Design

Assuming the 90 days trading horizon SH Energy Chemical is expected to generate 0.32 times more return on investment than Design. However, SH Energy Chemical is 3.15 times less risky than Design. It trades about -0.03 of its potential returns per unit of risk. Design Co is currently generating about -0.01 per unit of risk. If you would invest  84,059  in SH Energy Chemical on October 4, 2024 and sell it today you would lose (31,359) from holding SH Energy Chemical or give up 37.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.96%
Values	Daily Returns

SH Energy Chemical  vs.  Design Co

SH Energy Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SH Energy Chemical 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.

Design

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Design Co 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 basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with SH Energy and Design

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

The idea behind SH Energy Chemical and Design Co 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.