Correlation Between CHEMICAL INDUSTRIES and PACIFIC ONLINE

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

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

Diversification Opportunities for CHEMICAL INDUSTRIES and PACIFIC ONLINE

-1.0

Correlation Coefficient

CHEMICAL INDUSTRIES  PACIFIC ONLINE

Pay attention - limited upside

The 3 months correlation between CHEMICAL and PACIFIC is -1.0. Overlapping area represents the amount of risk that can be diversified away by holding CHEMICAL INDUSTRIES and PACIFIC ONLINE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACIFIC ONLINE and CHEMICAL INDUSTRIES 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 CHEMICAL INDUSTRIES are associated (or correlated) with PACIFIC ONLINE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACIFIC ONLINE has no effect on the direction of CHEMICAL INDUSTRIES i.e., CHEMICAL INDUSTRIES and PACIFIC ONLINE go up and down completely randomly.

Pair Corralation between CHEMICAL INDUSTRIES and PACIFIC ONLINE

Assuming the 90 days trading horizon CHEMICAL INDUSTRIES is expected to generate 10.25 times less return on investment than PACIFIC ONLINE. But when comparing it to its historical volatility, CHEMICAL INDUSTRIES is 10.25 times less risky than PACIFIC ONLINE. It trades about 0.05 of its potential returns per unit of risk. PACIFIC ONLINE is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  10.00  in PACIFIC ONLINE on December 13, 2024 and sell it today you would earn a total of  5.00  from holding PACIFIC ONLINE or generate 50.0% return on investment over 90 days.

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

CHEMICAL INDUSTRIES  vs.  PACIFIC ONLINE

CHEMICAL INDUSTRIES

Risk-Adjusted Performance

Very Weak

Over the last 90 days CHEMICAL INDUSTRIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, CHEMICAL INDUSTRIES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

PACIFIC ONLINE

Risk-Adjusted Performance

Very Weak

Over the last 90 days PACIFIC ONLINE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, PACIFIC ONLINE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CHEMICAL INDUSTRIES and PACIFIC ONLINE

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

The idea behind CHEMICAL INDUSTRIES and PACIFIC ONLINE 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.