Correlation Between Sung Bo and INNOX Advanced

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

By analyzing existing cross correlation between Sung Bo Chemicals and INNOX Advanced Materials, you can compare the effects of market volatilities on Sung Bo and INNOX Advanced 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 Sung Bo with a short position of INNOX Advanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sung Bo and INNOX Advanced.

Diversification Opportunities for Sung Bo and INNOX Advanced

0.67

Correlation Coefficient

Sung Bo  INNOX Advanced

Poor diversification

The 3 months correlation between Sung and INNOX is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Sung Bo Chemicals and INNOX Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INNOX Advanced Materials and Sung Bo 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 Sung Bo Chemicals are associated (or correlated) with INNOX Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INNOX Advanced Materials has no effect on the direction of Sung Bo i.e., Sung Bo and INNOX Advanced go up and down completely randomly.

Pair Corralation between Sung Bo and INNOX Advanced

Assuming the 90 days trading horizon Sung Bo is expected to generate 10.13 times less return on investment than INNOX Advanced. But when comparing it to its historical volatility, Sung Bo Chemicals is 4.03 times less risky than INNOX Advanced. It trades about 0.04 of its potential returns per unit of risk. INNOX Advanced Materials is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,315,277  in INNOX Advanced Materials on October 23, 2024 and sell it today you would earn a total of  454,723  from holding INNOX Advanced Materials or generate 19.64% return on investment over 90 days.

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

Sung Bo Chemicals  vs.  INNOX Advanced Materials

Sung Bo Chemicals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sung Bo Chemicals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sung Bo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

INNOX Advanced Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in INNOX Advanced Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, INNOX Advanced sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sung Bo and INNOX Advanced

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

The idea behind Sung Bo Chemicals and INNOX Advanced Materials 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.