Correlation Between Standard Chemical and Yong Shun

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

Diversification Opportunities for Standard Chemical and Yong Shun

0.83

Correlation Coefficient

Standard Chemical  Yong Shun

Very poor diversification

The 3 months correlation between Standard and Yong is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Standard Chemical Pharmaceutic and Yong Shun Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yong Shun Chemical 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 Yong Shun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yong Shun Chemical has no effect on the direction of Standard Chemical i.e., Standard Chemical and Yong Shun go up and down completely randomly.

Pair Corralation between Standard Chemical and Yong Shun

Assuming the 90 days trading horizon Standard Chemical is expected to generate 2.62 times less return on investment than Yong Shun. But when comparing it to its historical volatility, Standard Chemical Pharmaceutical is 1.2 times less risky than Yong Shun. It trades about 0.03 of its potential returns per unit of risk. Yong Shun Chemical is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,505  in Yong Shun Chemical on December 28, 2024 and sell it today you would earn a total of  35.00  from holding Yong Shun Chemical or generate 2.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.21%
Values	Daily Returns

Standard Chemical Pharmaceutic  vs.  Yong Shun Chemical

Standard Chemical

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Chemical Pharmaceutical are ranked lower than 1 (%) 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.

Yong Shun Chemical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yong Shun Chemical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Yong Shun 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 Yong Shun

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

The idea behind Standard Chemical Pharmaceutical and Yong Shun Chemical 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.