Correlation Between Industrial and Shandong Homey

Can any of the company-specific risk be diversified away by investing in both Industrial and Shandong Homey 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 Shandong Homey 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 Shandong Homey Aquatic, you can compare the effects of market volatilities on Industrial and Shandong Homey 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 Shandong Homey. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial and Shandong Homey.

Diversification Opportunities for Industrial and Shandong Homey

-0.54

Correlation Coefficient

Industrial  Shandong Homey

Excellent diversification

The 3 months correlation between Industrial and Shandong is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Shandong Homey Aquatic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Homey Aquatic 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 Shandong Homey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Homey Aquatic has no effect on the direction of Industrial i.e., Industrial and Shandong Homey go up and down completely randomly.

Pair Corralation between Industrial and Shandong Homey

Assuming the 90 days trading horizon Industrial and Commercial is expected to generate 0.42 times more return on investment than Shandong Homey. However, Industrial and Commercial is 2.41 times less risky than Shandong Homey. It trades about 0.15 of its potential returns per unit of risk. Shandong Homey Aquatic is currently generating about -0.03 per unit of risk. If you would invest  619.00  in Industrial and Commercial on November 28, 2024 and sell it today you would earn a total of  69.00  from holding Industrial and Commercial or generate 11.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Industrial and Commercial  vs.  Shandong Homey Aquatic

Industrial and Commercial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 11 (%) 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 March 2025.

Shandong Homey Aquatic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shandong Homey Aquatic 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 Industrial and Shandong Homey

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

The idea behind Industrial and Commercial and Shandong Homey Aquatic 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.