Correlation Between Industrial and Midea Group

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

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

Diversification Opportunities for Industrial and Midea Group

0.66

Correlation Coefficient

Industrial  Midea Group

Poor diversification

The 3 months correlation between Industrial and Midea is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Midea Group Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midea Group and Industrial 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 Industrial and Commercial are associated (or correlated) with Midea Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midea Group has no effect on the direction of Industrial i.e., Industrial and Midea Group go up and down completely randomly.

Pair Corralation between Industrial and Midea Group

Assuming the 90 days trading horizon Industrial and Commercial is expected to generate 0.7 times more return on investment than Midea Group. However, Industrial and Commercial is 1.43 times less risky than Midea Group. It trades about 0.13 of its potential returns per unit of risk. Midea Group Co is currently generating about 0.06 per unit of risk. If you would invest  604.00  in Industrial and Commercial on September 25, 2024 and sell it today you would earn a total of  66.00  from holding Industrial and Commercial or generate 10.93% return on investment over 90 days.

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

Industrial and Commercial  vs.  Midea Group Co

Industrial and Commercial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Midea Group

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Midea Group Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Midea Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Industrial and Midea Group

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

The idea behind Industrial and Commercial and Midea Group 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.

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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.