Correlation Between Reward Wool and Sanyang
Can any of the company-specific risk be diversified away by investing in both Reward Wool and Sanyang 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 Reward Wool and Sanyang into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Reward Wool Industry and Sanyang Motor Co, you can compare the effects of market volatilities on Reward Wool and Sanyang 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 Reward Wool with a short position of Sanyang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reward Wool and Sanyang.
Diversification Opportunities for Reward Wool and Sanyang
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Reward and Sanyang is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Reward Wool Industry and Sanyang Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanyang Motor and Reward Wool 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 Reward Wool Industry are associated (or correlated) with Sanyang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sanyang Motor has no effect on the direction of Reward Wool i.e., Reward Wool and Sanyang go up and down completely randomly.
Pair Corralation between Reward Wool and Sanyang
Assuming the 90 days trading horizon Reward Wool Industry is expected to under-perform the Sanyang. But the stock apears to be less risky and, when comparing its historical volatility, Reward Wool Industry is 1.47 times less risky than Sanyang. The stock trades about -0.32 of its potential returns per unit of risk. The Sanyang Motor Co is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 7,000 in Sanyang Motor Co on August 27, 2024 and sell it today you would earn a total of 240.00 from holding Sanyang Motor Co or generate 3.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Reward Wool Industry vs. Sanyang Motor Co
Performance |
| Timeline |
| Reward Wool Industry |
| Sanyang Motor |
Reward Wool and Sanyang Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Reward Wool and Sanyang
The main advantage of trading using opposite Reward Wool and Sanyang positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reward Wool position performs unexpectedly, Sanyang 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 Sanyang will offset losses from the drop in Sanyang's long position.| Reward Wool vs. Taiwan Semiconductor Manufacturing | Reward Wool vs. Hon Hai Precision | Reward Wool vs. MediaTek | Reward Wool vs. Chunghwa Telecom Co |
| Sanyang vs. Taiwan Semiconductor Manufacturing | Sanyang vs. Hon Hai Precision | Sanyang vs. MediaTek | Sanyang vs. Chunghwa Telecom Co |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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