Correlation Between Standard Chemical and Advanced Wireless

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

Diversification Opportunities for Standard Chemical and Advanced Wireless

0.37

Correlation Coefficient

Standard Chemical  Advanced Wireless

Weak diversification

The 3 months correlation between Standard and Advanced is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Standard Chemical Pharmaceutic and Advanced Wireless Semiconducto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Wireless 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 Advanced Wireless. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Wireless has no effect on the direction of Standard Chemical i.e., Standard Chemical and Advanced Wireless go up and down completely randomly.

Pair Corralation between Standard Chemical and Advanced Wireless

Assuming the 90 days trading horizon Standard Chemical Pharmaceutical is expected to generate 0.5 times more return on investment than Advanced Wireless. However, Standard Chemical Pharmaceutical is 2.01 times less risky than Advanced Wireless. It trades about -0.1 of its potential returns per unit of risk. Advanced Wireless Semiconductor is currently generating about -0.07 per unit of risk. If you would invest  7,390  in Standard Chemical Pharmaceutical on September 24, 2024 and sell it today you would lose (1,280) from holding Standard Chemical Pharmaceutical or give up 17.32% of portfolio value over 90 days.

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

Standard Chemical Pharmaceutic  vs.  Advanced Wireless Semiconducto

Standard Chemical

Risk-Adjusted Performance

0 of 100

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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Advanced Wireless

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Standard Chemical Pharmaceutical and Advanced Wireless Semiconductor 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.