Correlation Between Eternal Materials and Shiny Chemical

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

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

Diversification Opportunities for Eternal Materials and Shiny Chemical

0.77

Correlation Coefficient

Eternal Materials  Shiny Chemical

Poor diversification

The 3 months correlation between Eternal and Shiny is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Eternal Materials Co and Shiny Chemical Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shiny Chemical Industrial and Eternal Materials 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 Eternal Materials Co are associated (or correlated) with Shiny Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shiny Chemical Industrial has no effect on the direction of Eternal Materials i.e., Eternal Materials and Shiny Chemical go up and down completely randomly.

Pair Corralation between Eternal Materials and Shiny Chemical

Assuming the 90 days trading horizon Eternal Materials Co is expected to under-perform the Shiny Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Eternal Materials Co is 1.34 times less risky than Shiny Chemical. The stock trades about -0.02 of its potential returns per unit of risk. The Shiny Chemical Industrial is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  16,150  in Shiny Chemical Industrial on September 3, 2024 and sell it today you would earn a total of  450.00  from holding Shiny Chemical Industrial or generate 2.79% return on investment over 90 days.

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

Eternal Materials Co  vs.  Shiny Chemical Industrial

Eternal Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eternal Materials Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Eternal Materials is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Shiny Chemical Industrial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shiny Chemical Industrial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Shiny Chemical is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Eternal Materials and Shiny Chemical

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

The idea behind Eternal Materials Co and Shiny Chemical Industrial 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 Transaction History module to view history of all your transactions and understand their impact on performance.