Correlation Between Suprema and WONIK Materials

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

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

Diversification Opportunities for Suprema and WONIK Materials

0.76

Correlation Coefficient

Suprema  WONIK Materials

Poor diversification

The 3 months correlation between Suprema and WONIK is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Suprema and WONIK Materials CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WONIK Materials CoLtd and Suprema 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 Suprema are associated (or correlated) with WONIK Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WONIK Materials CoLtd has no effect on the direction of Suprema i.e., Suprema and WONIK Materials go up and down completely randomly.

Pair Corralation between Suprema and WONIK Materials

Assuming the 90 days trading horizon Suprema is expected to generate 0.65 times more return on investment than WONIK Materials. However, Suprema is 1.55 times less risky than WONIK Materials. It trades about -0.07 of its potential returns per unit of risk. WONIK Materials CoLtd is currently generating about -0.26 per unit of risk. If you would invest  2,565,000  in Suprema on September 13, 2024 and sell it today you would lose (170,000) from holding Suprema or give up 6.63% of portfolio value over 90 days.

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

Suprema  vs.  WONIK Materials CoLtd

Suprema

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Suprema 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.

WONIK Materials CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WONIK Materials CoLtd 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Suprema and WONIK Materials

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

The idea behind Suprema and WONIK Materials CoLtd 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.