Correlation Between Sea and Focus Home

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

By analyzing existing cross correlation between Sea Limited and Focus Home Interactive, you can compare the effects of market volatilities on Sea and Focus Home 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 Sea with a short position of Focus Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sea and Focus Home.

Diversification Opportunities for Sea and Focus Home

-0.54

Correlation Coefficient

Sea  Focus Home

Excellent diversification

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

Pair Corralation between Sea and Focus Home

Assuming the 90 days horizon Sea Limited is expected to generate 0.67 times more return on investment than Focus Home. However, Sea Limited is 1.5 times less risky than Focus Home. It trades about 0.19 of its potential returns per unit of risk. Focus Home Interactive is currently generating about 0.04 per unit of risk. If you would invest  8,610  in Sea Limited on October 1, 2024 and sell it today you would earn a total of  1,770  from holding Sea Limited or generate 20.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Sea Limited  vs.  Focus Home Interactive

Sea Limited

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sea Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sea reported solid returns over the last few months and may actually be approaching a breakup point.

Focus Home Interactive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Focus Home Interactive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Focus Home is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sea and Focus Home

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

The idea behind Sea Limited and Focus Home Interactive 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.