Correlation Between Standard Chemical and Shiny Chemical

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

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

Diversification Opportunities for Standard Chemical and Shiny Chemical

0.46

Correlation Coefficient

Standard Chemical  Shiny Chemical

Very weak diversification

The 3 months correlation between Standard and Shiny is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Standard Chemical Pharmaceutic and Shiny Chemical Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shiny Chemical Industrial and Standard Chemical 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 Standard Chemical Pharmaceutical are associated (or correlated) with Shiny Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shiny Chemical Industrial has no effect on the direction of Standard Chemical i.e., Standard Chemical and Shiny Chemical go up and down completely randomly.

Pair Corralation between Standard Chemical and Shiny Chemical

Assuming the 90 days trading horizon Standard Chemical Pharmaceutical is expected to generate 0.4 times more return on investment than Shiny Chemical. However, Standard Chemical Pharmaceutical is 2.52 times less risky than Shiny Chemical. It trades about 0.08 of its potential returns per unit of risk. Shiny Chemical Industrial is currently generating about -0.06 per unit of risk. If you would invest  6,150  in Standard Chemical Pharmaceutical on December 23, 2024 and sell it today you would earn a total of  170.00  from holding Standard Chemical Pharmaceutical or generate 2.76% return on investment over 90 days.

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

Standard Chemical Pharmaceutic  vs.  Shiny Chemical Industrial

Standard Chemical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Chemical Pharmaceutical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Standard Chemical is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Shiny Chemical Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shiny Chemical Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Shiny Chemical is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Standard Chemical and Shiny Chemical

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

The idea behind Standard Chemical Pharmaceutical and Shiny Chemical Industrial 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.