Correlation Between CMC Corp and South Basic

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

By analyzing existing cross correlation between CMC Corp and South Basic Chemicals, you can compare the effects of market volatilities on CMC Corp and South Basic 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 CMC Corp with a short position of South Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMC Corp and South Basic.

Diversification Opportunities for CMC Corp and South Basic

0.49

Correlation Coefficient

CMC Corp  South Basic

Very weak diversification

The 3 months correlation between CMC and South is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding CMC Corp and South Basic Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Basic Chemicals and CMC Corp 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 CMC Corp are associated (or correlated) with South Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Basic Chemicals has no effect on the direction of CMC Corp i.e., CMC Corp and South Basic go up and down completely randomly.

Pair Corralation between CMC Corp and South Basic

Assuming the 90 days trading horizon CMC Corp is expected to generate 0.48 times more return on investment than South Basic. However, CMC Corp is 2.06 times less risky than South Basic. It trades about 0.04 of its potential returns per unit of risk. South Basic Chemicals is currently generating about -0.04 per unit of risk. If you would invest  4,068,926  in CMC Corp on September 26, 2024 and sell it today you would earn a total of  1,431,074  from holding CMC Corp or generate 35.17% return on investment over 90 days.

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

CMC Corp  vs.  South Basic Chemicals

CMC Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, CMC Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

South Basic Chemicals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in South Basic Chemicals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, South Basic displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CMC Corp and South Basic

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

The idea behind CMC Corp and South Basic Chemicals 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.