Correlation Between Shui Mu and New Palace
Can any of the company-specific risk be diversified away by investing in both Shui Mu and New Palace 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 Shui Mu and New Palace into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shui Mu International Co and New Palace International, you can compare the effects of market volatilities on Shui Mu and New Palace 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 Shui Mu with a short position of New Palace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shui Mu and New Palace.
Diversification Opportunities for Shui Mu and New Palace
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Shui and New is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Shui Mu International Co and New Palace International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Palace International and Shui Mu 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 Shui Mu International Co are associated (or correlated) with New Palace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Palace International has no effect on the direction of Shui Mu i.e., Shui Mu and New Palace go up and down completely randomly.
Pair Corralation between Shui Mu and New Palace
Assuming the 90 days trading horizon Shui Mu International Co is expected to generate 0.39 times more return on investment than New Palace. However, Shui Mu International Co is 2.57 times less risky than New Palace. It trades about 0.05 of its potential returns per unit of risk. New Palace International is currently generating about -0.13 per unit of risk. If you would invest 1,175 in Shui Mu International Co on September 4, 2024 and sell it today you would earn a total of 5.00 from holding Shui Mu International Co or generate 0.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shui Mu International Co vs. New Palace International
Performance |
| Timeline |
| Shui Mu International |
| New Palace International |
Shui Mu and New Palace Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shui Mu and New Palace
The main advantage of trading using opposite Shui Mu and New Palace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shui Mu position performs unexpectedly, New Palace 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 New Palace will offset losses from the drop in New Palace's long position.The idea behind Shui Mu International Co and New Palace International 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.| New Palace vs. Tainan Spinning Co | New Palace vs. Chia Her Industrial | New Palace vs. WiseChip Semiconductor | New Palace vs. Novatek Microelectronics Corp |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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