Correlation Between Xiaomi Corp and Sony Corp

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

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

Diversification Opportunities for Xiaomi Corp and Sony Corp

0.9

Correlation Coefficient

Xiaomi Corp  Sony Corp

Almost no diversification

The 3 months correlation between Xiaomi and Sony is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Xiaomi Corp and Sony Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sony Corp and Xiaomi Corp 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 Xiaomi Corp are associated (or correlated) with Sony Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sony Corp has no effect on the direction of Xiaomi Corp i.e., Xiaomi Corp and Sony Corp go up and down completely randomly.

Pair Corralation between Xiaomi Corp and Sony Corp

Assuming the 90 days horizon Xiaomi Corp is expected to generate 1.11 times more return on investment than Sony Corp. However, Xiaomi Corp is 1.11 times more volatile than Sony Corp. It trades about 0.19 of its potential returns per unit of risk. Sony Corp is currently generating about 0.12 per unit of risk. If you would invest  450.00  in Xiaomi Corp on December 28, 2024 and sell it today you would earn a total of  216.00  from holding Xiaomi Corp or generate 48.0% return on investment over 90 days.

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

Xiaomi Corp  vs.  Sony Corp

Xiaomi Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xiaomi Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting fundamental indicators, Xiaomi Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Sony Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sony Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting forward-looking indicators, Sony Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xiaomi Corp and Sony Corp

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

The idea behind Xiaomi Corp and Sony 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.