Correlation Between SDN and National Plastic

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Can any of the company-specific risk be diversified away by investing in both SDN and National Plastic 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 SDN and National Plastic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SDN Company and National Plastic Co, you can compare the effects of market volatilities on SDN and National Plastic 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 SDN with a short position of National Plastic. Check out your portfolio center. Please also check ongoing floating volatility patterns of SDN and National Plastic.

Diversification Opportunities for SDN and National Plastic

SDNNationalDiversified AwaySDNNationalDiversified Away100%
-0.25
  Correlation Coefficient

Very good diversification

The 3 months correlation between SDN and National is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding SDN Company and National Plastic Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Plastic and SDN 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 SDN Company are associated (or correlated) with National Plastic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Plastic has no effect on the direction of SDN i.e., SDN and National Plastic go up and down completely randomly.

Pair Corralation between SDN and National Plastic

Assuming the 90 days trading horizon SDN Company is expected to generate 3.3 times more return on investment than National Plastic. However, SDN is 3.3 times more volatile than National Plastic Co. It trades about 0.07 of its potential returns per unit of risk. National Plastic Co is currently generating about -0.09 per unit of risk. If you would invest  103,200  in SDN Company on November 24, 2024 and sell it today you would earn a total of  12,400  from holding SDN Company or generate 12.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

SDN Company  vs.  National Plastic Co

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -5051015202530
JavaScript chart by amCharts 3.21.15099220 004255
       Timeline  
SDN Company 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in SDN Company are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SDN sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb1,0001,0501,1001,1501,2001,2501,3001,3501,400
National Plastic 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days National Plastic Co 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.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb2,4002,4502,5002,5502,6002,650

SDN and National Plastic Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-10.75-8.05-5.35-2.650.02.755.558.3511.15 0.050.100.150.200.25
JavaScript chart by amCharts 3.21.15099220 004255
       Returns  

Pair Trading with SDN and National Plastic

The main advantage of trading using opposite SDN and National Plastic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SDN position performs unexpectedly, National Plastic 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 National Plastic will offset losses from the drop in National Plastic's long position.
The idea behind SDN Company and National Plastic 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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