Correlation Between Samsung Electronics and Xiaomi Corp

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

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

Diversification Opportunities for Samsung Electronics and Xiaomi Corp

0.85

Correlation Coefficient

Samsung Electronics  Xiaomi Corp

Very poor diversification

The 3 months correlation between Samsung and Xiaomi is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Samsung Electronics Co and Xiaomi Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiaomi Corp and Samsung Electronics 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 Samsung Electronics Co are associated (or correlated) with Xiaomi Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiaomi Corp has no effect on the direction of Samsung Electronics i.e., Samsung Electronics and Xiaomi Corp go up and down completely randomly.

Pair Corralation between Samsung Electronics and Xiaomi Corp

Assuming the 90 days horizon Samsung Electronics is expected to generate 67.3 times less return on investment than Xiaomi Corp. But when comparing it to its historical volatility, Samsung Electronics Co is 36.86 times less risky than Xiaomi Corp. It trades about 0.13 of its potential returns per unit of risk. Xiaomi Corp is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  237.00  in Xiaomi Corp on September 5, 2024 and sell it today you would earn a total of  123.00  from holding Xiaomi Corp or generate 51.9% return on investment over 90 days.

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

Samsung Electronics Co  vs.  Xiaomi Corp

Samsung Electronics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Samsung Electronics Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Samsung Electronics is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Xiaomi Corp

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xiaomi Corp are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Xiaomi Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Samsung Electronics and Xiaomi Corp

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

The idea behind Samsung Electronics Co and Xiaomi 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.

Check out your portfolio center.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.