Correlation Between Silver Spike and Sihuan Pharmaceutical

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

By analyzing existing cross correlation between Silver Spike Investment and Sihuan Pharmaceutical Holdings, you can compare the effects of market volatilities on Silver Spike and Sihuan Pharmaceutical 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 Silver Spike with a short position of Sihuan Pharmaceutical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Silver Spike and Sihuan Pharmaceutical.

Diversification Opportunities for Silver Spike and Sihuan Pharmaceutical

0.25

Correlation Coefficient

Silver Spike  Sihuan Pharmaceutical

Modest diversification

The 3 months correlation between Silver and Sihuan is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Silver Spike Investment and Sihuan Pharmaceutical Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sihuan Pharmaceutical and Silver Spike 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 Silver Spike Investment are associated (or correlated) with Sihuan Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sihuan Pharmaceutical has no effect on the direction of Silver Spike i.e., Silver Spike and Sihuan Pharmaceutical go up and down completely randomly.

Pair Corralation between Silver Spike and Sihuan Pharmaceutical

Given the investment horizon of 90 days Silver Spike is expected to generate 5.16 times less return on investment than Sihuan Pharmaceutical. But when comparing it to its historical volatility, Silver Spike Investment is 5.4 times less risky than Sihuan Pharmaceutical. It trades about 0.22 of its potential returns per unit of risk. Sihuan Pharmaceutical Holdings is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  6.50  in Sihuan Pharmaceutical Holdings on August 30, 2024 and sell it today you would earn a total of  3.00  from holding Sihuan Pharmaceutical Holdings or generate 46.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	59.46%
Values	Daily Returns

Silver Spike Investment  vs.  Sihuan Pharmaceutical Holdings

Silver Spike Investment

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Silver Spike Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather fragile forward indicators, Silver Spike exhibited solid returns over the last few months and may actually be approaching a breakup point.

Sihuan Pharmaceutical

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Sihuan Pharmaceutical Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak technical indicators, Sihuan Pharmaceutical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Silver Spike and Sihuan Pharmaceutical

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

The idea behind Silver Spike Investment and Sihuan Pharmaceutical Holdings 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.