Correlation Between Microfriend and Youl Chon

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

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

Diversification Opportunities for Microfriend and Youl Chon

0.53

Correlation Coefficient

Microfriend  Youl Chon

Very weak diversification

The 3 months correlation between Microfriend and Youl is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Microfriend and Youl Chon Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Youl Chon Chemical and Microfriend 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 Microfriend are associated (or correlated) with Youl Chon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Youl Chon Chemical has no effect on the direction of Microfriend i.e., Microfriend and Youl Chon go up and down completely randomly.

Pair Corralation between Microfriend and Youl Chon

Assuming the 90 days trading horizon Microfriend is expected to generate 1.35 times less return on investment than Youl Chon. In addition to that, Microfriend is 1.73 times more volatile than Youl Chon Chemical. It trades about 0.01 of its total potential returns per unit of risk. Youl Chon Chemical is currently generating about 0.01 per unit of volatility. If you would invest  2,260,000  in Youl Chon Chemical on September 4, 2024 and sell it today you would lose (25,000) from holding Youl Chon Chemical or give up 1.11% of portfolio value over 90 days.

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

Microfriend  vs.  Youl Chon Chemical

Microfriend

Risk-Adjusted Performance

0 of 100

Very Weak

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

Youl Chon Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Youl Chon Chemical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Youl Chon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microfriend and Youl Chon

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

The idea behind Microfriend and Youl Chon 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.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.