Correlation Between Sanyo Special and Century Aluminum

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

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

Diversification Opportunities for Sanyo Special and Century Aluminum

0.65

Correlation Coefficient

Sanyo Special  Century Aluminum

Poor diversification

The 3 months correlation between Sanyo and Century is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Sanyo Special Steel and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum and Sanyo Special 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 Sanyo Special Steel are associated (or correlated) with Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of Sanyo Special i.e., Sanyo Special and Century Aluminum go up and down completely randomly.

Pair Corralation between Sanyo Special and Century Aluminum

Assuming the 90 days horizon Sanyo Special is expected to generate 78.04 times less return on investment than Century Aluminum. But when comparing it to its historical volatility, Sanyo Special Steel is 43.15 times less risky than Century Aluminum. It trades about 0.13 of its potential returns per unit of risk. Century Aluminum is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,304  in Century Aluminum on September 12, 2024 and sell it today you would earn a total of  894.00  from holding Century Aluminum or generate 68.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

Sanyo Special Steel  vs.  Century Aluminum

Sanyo Special Steel

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sanyo Special Steel are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Sanyo Special is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Century Aluminum

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sanyo Special and Century Aluminum

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

The idea behind Sanyo Special Steel and Century Aluminum 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.