Correlation Between Design and SK Chemicals

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

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

Diversification Opportunities for Design and SK Chemicals

0.27

Correlation Coefficient

Design  SK Chemicals

Modest diversification

The 3 months correlation between Design and 285130 is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Design Co and SK Chemicals Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SK Chemicals and Design 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 Design Co are associated (or correlated) with SK Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SK Chemicals has no effect on the direction of Design i.e., Design and SK Chemicals go up and down completely randomly.

Pair Corralation between Design and SK Chemicals

Assuming the 90 days trading horizon Design Co is expected to under-perform the SK Chemicals. In addition to that, Design is 2.78 times more volatile than SK Chemicals Co. It trades about -0.15 of its total potential returns per unit of risk. SK Chemicals Co is currently generating about -0.07 per unit of volatility. If you would invest  5,050,000  in SK Chemicals Co on October 11, 2024 and sell it today you would lose (605,000) from holding SK Chemicals Co or give up 11.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.8%
Values	Daily Returns

Design Co  vs.  SK Chemicals Co

Design

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Design Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

SK Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SK Chemicals Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Design and SK Chemicals

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

The idea behind Design Co and SK Chemicals 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.