Correlation Between Shui Mu and Les Enphants

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

By analyzing existing cross correlation between Shui Mu International Co and Les Enphants Co, you can compare the effects of market volatilities on Shui Mu and Les Enphants 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 Shui Mu with a short position of Les Enphants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shui Mu and Les Enphants.

Diversification Opportunities for Shui Mu and Les Enphants

0.62

Correlation Coefficient

Shui Mu  Les Enphants

Poor diversification

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

Pair Corralation between Shui Mu and Les Enphants

Assuming the 90 days trading horizon Shui Mu International Co is expected to under-perform the Les Enphants. In addition to that, Shui Mu is 1.37 times more volatile than Les Enphants Co. It trades about -0.12 of its total potential returns per unit of risk. Les Enphants Co is currently generating about -0.16 per unit of volatility. If you would invest  887.00  in Les Enphants Co on September 17, 2024 and sell it today you would lose (22.00) from holding Les Enphants Co or give up 2.48% of portfolio value over 90 days.

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

Shui Mu International Co  vs.  Les Enphants Co

Shui Mu International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shui Mu International Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Shui Mu is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Les Enphants

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Les Enphants Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Les Enphants 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 Shui Mu and Les Enphants

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

The idea behind Shui Mu International Co and Les Enphants 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.