Correlation Between Namhae Chemical and SH Energy

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

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

Diversification Opportunities for Namhae Chemical and SH Energy

0.27

Correlation Coefficient

Namhae Chemical  SH Energy

Modest diversification

The 3 months correlation between Namhae and 002360 is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Namhae Chemical and SH Energy Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SH Energy Chemical and Namhae Chemical 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 Namhae Chemical are associated (or correlated) with SH Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SH Energy Chemical has no effect on the direction of Namhae Chemical i.e., Namhae Chemical and SH Energy go up and down completely randomly.

Pair Corralation between Namhae Chemical and SH Energy

Assuming the 90 days trading horizon Namhae Chemical is expected to under-perform the SH Energy. But the stock apears to be less risky and, when comparing its historical volatility, Namhae Chemical is 3.17 times less risky than SH Energy. The stock trades about -0.06 of its potential returns per unit of risk. The SH Energy Chemical is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  53,000  in SH Energy Chemical on September 28, 2024 and sell it today you would lose (1,400) from holding SH Energy Chemical or give up 2.64% of portfolio value over 90 days.

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

Namhae Chemical  vs.  SH Energy Chemical

Namhae Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Namhae Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Namhae Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SH Energy Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SH Energy Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SH Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Namhae Chemical and SH Energy

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

The idea behind Namhae Chemical and SH Energy Chemical 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.