Correlation Between Yong Shun and Solar Applied

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

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

Diversification Opportunities for Yong Shun and Solar Applied

0.62

Correlation Coefficient

Yong Shun  Solar Applied

Poor diversification

The 3 months correlation between Yong and Solar is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Yong Shun Chemical and Solar Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solar Applied Materials and Yong Shun 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 Yong Shun Chemical are associated (or correlated) with Solar Applied. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solar Applied Materials has no effect on the direction of Yong Shun i.e., Yong Shun and Solar Applied go up and down completely randomly.

Pair Corralation between Yong Shun and Solar Applied

Assuming the 90 days trading horizon Yong Shun Chemical is expected to generate 0.4 times more return on investment than Solar Applied. However, Yong Shun Chemical is 2.5 times less risky than Solar Applied. It trades about 0.07 of its potential returns per unit of risk. Solar Applied Materials is currently generating about 0.01 per unit of risk. If you would invest  1,510  in Yong Shun Chemical on December 22, 2024 and sell it today you would earn a total of  45.00  from holding Yong Shun Chemical or generate 2.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.25%
Values	Daily Returns

Yong Shun Chemical  vs.  Solar Applied Materials

Yong Shun Chemical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yong Shun Chemical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Yong Shun is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Solar Applied Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solar Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Solar Applied 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 Yong Shun and Solar Applied

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

The idea behind Yong Shun Chemical and Solar Applied Materials 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.