Correlation Between San Fang and Universal

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

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

Diversification Opportunities for San Fang and Universal

0.22

Correlation Coefficient

San Fang  Universal

Modest diversification

The 3 months correlation between San and Universal is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding San Fang Chemical and Universal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal and San Fang 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 San Fang Chemical are associated (or correlated) with Universal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal has no effect on the direction of San Fang i.e., San Fang and Universal go up and down completely randomly.

Pair Corralation between San Fang and Universal

Assuming the 90 days trading horizon San Fang Chemical is expected to generate 0.72 times more return on investment than Universal. However, San Fang Chemical is 1.38 times less risky than Universal. It trades about 0.29 of its potential returns per unit of risk. Universal is currently generating about 0.03 per unit of risk. If you would invest  3,875  in San Fang Chemical on December 5, 2024 and sell it today you would earn a total of  1,195  from holding San Fang Chemical or generate 30.84% return on investment over 90 days.

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

San Fang Chemical  vs.  Universal

San Fang Chemical

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in San Fang Chemical are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, San Fang showed solid returns over the last few months and may actually be approaching a breakup point.

Universal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Universal showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with San Fang and Universal

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

The idea behind San Fang Chemical and Universal 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.