Correlation Between Shiny Chemical and Mechema Chemicals

Can any of the company-specific risk be diversified away by investing in both Shiny Chemical and Mechema Chemicals 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 Shiny Chemical and Mechema Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shiny Chemical Industrial and Mechema Chemicals Int, you can compare the effects of market volatilities on Shiny Chemical and Mechema Chemicals 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 Shiny Chemical with a short position of Mechema Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shiny Chemical and Mechema Chemicals.

Diversification Opportunities for Shiny Chemical and Mechema Chemicals

0.21

Correlation Coefficient

Shiny Chemical  Mechema Chemicals

Modest diversification

The 3 months correlation between Shiny and Mechema is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Shiny Chemical Industrial and Mechema Chemicals Int in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mechema Chemicals Int and Shiny 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 Shiny Chemical Industrial are associated (or correlated) with Mechema Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mechema Chemicals Int has no effect on the direction of Shiny Chemical i.e., Shiny Chemical and Mechema Chemicals go up and down completely randomly.

Pair Corralation between Shiny Chemical and Mechema Chemicals

Assuming the 90 days trading horizon Shiny Chemical Industrial is expected to under-perform the Mechema Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, Shiny Chemical Industrial is 1.13 times less risky than Mechema Chemicals. The stock trades about -0.07 of its potential returns per unit of risk. The Mechema Chemicals Int is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  7,060  in Mechema Chemicals Int on October 9, 2024 and sell it today you would lose (490.00) from holding Mechema Chemicals Int or give up 6.94% of portfolio value over 90 days.

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

Shiny Chemical Industrial  vs.  Mechema Chemicals Int

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.

Mechema Chemicals Int

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mechema Chemicals Int has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Mechema Chemicals 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 Shiny Chemical and Mechema Chemicals

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

The idea behind Shiny Chemical Industrial and Mechema Chemicals Int 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.