Correlation Between Song Hong and CMC Corp

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

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

Diversification Opportunities for Song Hong and CMC Corp

-0.17

Correlation Coefficient

Song Hong  CMC Corp

Good diversification

The 3 months correlation between Song and CMC is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Song Hong Aluminum and CMC Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Corp and Song Hong 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 Song Hong Aluminum are associated (or correlated) with CMC Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Corp has no effect on the direction of Song Hong i.e., Song Hong and CMC Corp go up and down completely randomly.

Pair Corralation between Song Hong and CMC Corp

Assuming the 90 days trading horizon Song Hong Aluminum is expected to under-perform the CMC Corp. But the stock apears to be less risky and, when comparing its historical volatility, Song Hong Aluminum is 1.14 times less risky than CMC Corp. The stock trades about -0.06 of its potential returns per unit of risk. The CMC Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,567,568  in CMC Corp on October 25, 2024 and sell it today you would earn a total of  182,432  from holding CMC Corp or generate 3.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Song Hong Aluminum  vs.  CMC Corp

Song Hong Aluminum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Song Hong Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

CMC Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, CMC Corp is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Song Hong and CMC Corp

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

The idea behind Song Hong Aluminum and CMC Corp 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.