Correlation Between Evermore Chemical and Shiny Chemical

Can any of the company-specific risk be diversified away by investing in both Evermore 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 Evermore 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 Evermore Chemical Industry and Shiny Chemical Industrial, you can compare the effects of market volatilities on Evermore 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 Evermore Chemical with a short position of Shiny Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Evermore Chemical and Shiny Chemical.

Diversification Opportunities for Evermore Chemical and Shiny Chemical

0.7

Correlation Coefficient

Evermore Chemical  Shiny Chemical

Poor diversification

The 3 months correlation between Evermore and Shiny is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Evermore Chemical Industry 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 Evermore 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 Evermore Chemical Industry 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 Evermore Chemical i.e., Evermore Chemical and Shiny Chemical go up and down completely randomly.

Pair Corralation between Evermore Chemical and Shiny Chemical

Assuming the 90 days trading horizon Evermore Chemical Industry is expected to generate 0.87 times more return on investment than Shiny Chemical. However, Evermore Chemical Industry is 1.15 times less risky than Shiny Chemical. It trades about -0.14 of its potential returns per unit of risk. Shiny Chemical Industrial is currently generating about -0.18 per unit of risk. If you would invest  2,035  in Evermore Chemical Industry on October 10, 2024 and sell it today you would lose (80.00) from holding Evermore Chemical Industry or give up 3.93% of portfolio value over 90 days.

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

Evermore Chemical Industry  vs.  Shiny Chemical Industrial

Evermore Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evermore Chemical Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Shiny Chemical Industrial

Risk-Adjusted Performance

0 of 100

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 latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Evermore Chemical and Shiny Chemical

The main advantage of trading using opposite Evermore Chemical and Shiny Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Evermore 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 Evermore Chemical Industry 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.