Correlation Between Standard Chemical and Giant Manufacturing

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

Diversification Opportunities for Standard Chemical and Giant Manufacturing

0.75

Correlation Coefficient

Standard Chemical  Giant Manufacturing

Poor diversification

The 3 months correlation between Standard and Giant is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Standard Chemical Pharmaceutic and Giant Manufacturing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Giant Manufacturing 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 Giant Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Giant Manufacturing has no effect on the direction of Standard Chemical i.e., Standard Chemical and Giant Manufacturing go up and down completely randomly.

Pair Corralation between Standard Chemical and Giant Manufacturing

Assuming the 90 days trading horizon Standard Chemical Pharmaceutical is expected to under-perform the Giant Manufacturing. But the stock apears to be less risky and, when comparing its historical volatility, Standard Chemical Pharmaceutical is 3.21 times less risky than Giant Manufacturing. The stock trades about -0.01 of its potential returns per unit of risk. The Giant Manufacturing Co is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  14,300  in Giant Manufacturing Co on December 30, 2024 and sell it today you would earn a total of  100.00  from holding Giant Manufacturing Co or generate 0.7% return on investment over 90 days.

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

Standard Chemical Pharmaceutic  vs.  Giant Manufacturing Co

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.

Giant Manufacturing

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Giant Manufacturing Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Giant Manufacturing 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 Giant Manufacturing

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

The idea behind Standard Chemical Pharmaceutical and Giant Manufacturing Co 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.