Correlation Between Shui Mu and Super Dragon
Can any of the company-specific risk be diversified away by investing in both Shui Mu and Super Dragon 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 Super Dragon 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 Super Dragon Technology, you can compare the effects of market volatilities on Shui Mu and Super Dragon 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 Super Dragon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shui Mu and Super Dragon.
Diversification Opportunities for Shui Mu and Super Dragon
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between Shui and Super is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Shui Mu International Co and Super Dragon Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Super Dragon Technology 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 Super Dragon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Super Dragon Technology has no effect on the direction of Shui Mu i.e., Shui Mu and Super Dragon go up and down completely randomly.
Pair Corralation between Shui Mu and Super Dragon
Assuming the 90 days trading horizon Shui Mu International Co is expected to generate 0.32 times more return on investment than Super Dragon. However, Shui Mu International Co is 3.15 times less risky than Super Dragon. It trades about 0.06 of its potential returns per unit of risk. Super Dragon Technology is currently generating about -0.13 per unit of risk. If you would invest 1,155 in Shui Mu International Co on September 4, 2024 and sell it today you would earn a total of 25.00 from holding Shui Mu International Co or generate 2.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.41% |
| Values | Daily Returns |
Shui Mu International Co vs. Super Dragon Technology
Performance |
| Timeline |
| Shui Mu International |
| Super Dragon Technology |
Shui Mu and Super Dragon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shui Mu and Super Dragon
The main advantage of trading using opposite Shui Mu and Super Dragon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shui Mu position performs unexpectedly, Super Dragon 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 Super Dragon will offset losses from the drop in Super Dragon's long position.The idea behind Shui Mu International Co and Super Dragon Technology 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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