Correlation Between Standard Chemical and Microtips Technology

Can any of the company-specific risk be diversified away by investing in both Standard Chemical and Microtips Technology 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 Microtips Technology 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 Microtips Technology, you can compare the effects of market volatilities on Standard Chemical and Microtips Technology 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 Microtips Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Standard Chemical and Microtips Technology.

Diversification Opportunities for Standard Chemical and Microtips Technology

0.4

Correlation Coefficient

Standard Chemical  Microtips Technology

Very weak diversification

The 3 months correlation between Standard and Microtips is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Standard Chemical Pharmaceutic and Microtips Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microtips Technology 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 Microtips Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microtips Technology has no effect on the direction of Standard Chemical i.e., Standard Chemical and Microtips Technology go up and down completely randomly.

Pair Corralation between Standard Chemical and Microtips Technology

Assuming the 90 days trading horizon Standard Chemical Pharmaceutical is expected to generate 0.87 times more return on investment than Microtips Technology. However, Standard Chemical Pharmaceutical is 1.15 times less risky than Microtips Technology. It trades about 0.06 of its potential returns per unit of risk. Microtips Technology is currently generating about -0.02 per unit of risk. If you would invest  6,170  in Standard Chemical Pharmaceutical on December 5, 2024 and sell it today you would earn a total of  60.00  from holding Standard Chemical Pharmaceutical or generate 0.97% 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.  Microtips Technology

Standard Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Standard Chemical Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Microtips Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microtips Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Microtips Technology 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 Microtips Technology

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

The idea behind Standard Chemical Pharmaceutical and Microtips Technology 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.