Correlation Between Sunny Friend and Hsin Kuang
Can any of the company-specific risk be diversified away by investing in both Sunny Friend and Hsin Kuang 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 Sunny Friend and Hsin Kuang into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sunny Friend Environmental and Hsin Kuang Steel, you can compare the effects of market volatilities on Sunny Friend and Hsin Kuang 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 Sunny Friend with a short position of Hsin Kuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sunny Friend and Hsin Kuang.
Diversification Opportunities for Sunny Friend and Hsin Kuang
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Sunny and Hsin is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Sunny Friend Environmental and Hsin Kuang Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hsin Kuang Steel and Sunny Friend 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 Sunny Friend Environmental are associated (or correlated) with Hsin Kuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hsin Kuang Steel has no effect on the direction of Sunny Friend i.e., Sunny Friend and Hsin Kuang go up and down completely randomly.
Pair Corralation between Sunny Friend and Hsin Kuang
Assuming the 90 days trading horizon Sunny Friend Environmental is expected to generate 1.03 times more return on investment than Hsin Kuang. However, Sunny Friend is 1.03 times more volatile than Hsin Kuang Steel. It trades about -0.18 of its potential returns per unit of risk. Hsin Kuang Steel is currently generating about -0.19 per unit of risk. If you would invest 9,620 in Sunny Friend Environmental on November 2, 2024 and sell it today you would lose (1,320) from holding Sunny Friend Environmental or give up 13.72% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sunny Friend Environmental vs. Hsin Kuang Steel
Performance |
| Timeline |
| Sunny Friend Environ |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Hsin Kuang Steel |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Sunny Friend and Hsin Kuang Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sunny Friend and Hsin Kuang
The main advantage of trading using opposite Sunny Friend and Hsin Kuang positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sunny Friend position performs unexpectedly, Hsin Kuang 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 Hsin Kuang will offset losses from the drop in Hsin Kuang's long position.The idea behind Sunny Friend Environmental and Hsin Kuang Steel 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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