Correlation Between Sony and Xiaomi

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

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

Diversification Opportunities for Sony and Xiaomi

0.55

Correlation Coefficient

Sony  Xiaomi

Very weak diversification

The 3 months correlation between Sony and Xiaomi is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Sony Group and Xiaomi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiaomi and Sony 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 Sony Group are associated (or correlated) with Xiaomi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiaomi has no effect on the direction of Sony i.e., Sony and Xiaomi go up and down completely randomly.

Pair Corralation between Sony and Xiaomi

Assuming the 90 days trading horizon Sony is expected to generate 2.79 times less return on investment than Xiaomi. But when comparing it to its historical volatility, Sony Group is 1.23 times less risky than Xiaomi. It trades about 0.13 of its potential returns per unit of risk. Xiaomi is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  219.00  in Xiaomi on September 12, 2024 and sell it today you would earn a total of  173.00  from holding Xiaomi or generate 79.0% return on investment over 90 days.

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

Sony Group  vs.  Xiaomi

Sony Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sony Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sony reported solid returns over the last few months and may actually be approaching a breakup point.

Xiaomi

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xiaomi are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xiaomi reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sony and Xiaomi

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

The idea behind Sony Group and Xiaomi 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.