Correlation Between Yageo Corp and Song Shang

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

By analyzing existing cross correlation between Yageo Corp and Song Shang Electronics, you can compare the effects of market volatilities on Yageo Corp and Song Shang 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 Yageo Corp with a short position of Song Shang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yageo Corp and Song Shang.

Diversification Opportunities for Yageo Corp and Song Shang

0.36

Correlation Coefficient

Yageo Corp  Song Shang

Weak diversification

The 3 months correlation between Yageo and Song is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Yageo Corp and Song Shang Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Song Shang Electronics and Yageo Corp 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 Yageo Corp are associated (or correlated) with Song Shang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Song Shang Electronics has no effect on the direction of Yageo Corp i.e., Yageo Corp and Song Shang go up and down completely randomly.

Pair Corralation between Yageo Corp and Song Shang

Assuming the 90 days trading horizon Yageo Corp is expected to generate 1.75 times less return on investment than Song Shang. In addition to that, Yageo Corp is 1.05 times more volatile than Song Shang Electronics. It trades about 0.02 of its total potential returns per unit of risk. Song Shang Electronics is currently generating about 0.04 per unit of volatility. If you would invest  2,885  in Song Shang Electronics on December 4, 2024 and sell it today you would earn a total of  90.00  from holding Song Shang Electronics or generate 3.12% return on investment over 90 days.

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

Yageo Corp  vs.  Song Shang Electronics

Yageo Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Yageo Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Yageo Corp is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Song Shang Electronics

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Song Shang Electronics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Song Shang 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 Yageo Corp and Song Shang

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

The idea behind Yageo Corp and Song Shang Electronics 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.