Correlation Between Song Ho and Gold Rain

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

By analyzing existing cross correlation between Song Ho Industrial and Gold Rain Enterprises, you can compare the effects of market volatilities on Song Ho and Gold Rain 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 Song Ho with a short position of Gold Rain. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Ho and Gold Rain.

Diversification Opportunities for Song Ho and Gold Rain

-0.25

Correlation Coefficient

Song Ho  Gold Rain

Very good diversification

The 3 months correlation between Song and Gold is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Song Ho Industrial and Gold Rain Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Rain Enterprises and Song Ho 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 Song Ho Industrial are associated (or correlated) with Gold Rain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Rain Enterprises has no effect on the direction of Song Ho i.e., Song Ho and Gold Rain go up and down completely randomly.

Pair Corralation between Song Ho and Gold Rain

Assuming the 90 days trading horizon Song Ho Industrial is expected to generate 0.25 times more return on investment than Gold Rain. However, Song Ho Industrial is 4.04 times less risky than Gold Rain. It trades about 0.01 of its potential returns per unit of risk. Gold Rain Enterprises is currently generating about -0.02 per unit of risk. If you would invest  2,760  in Song Ho Industrial on September 26, 2024 and sell it today you would earn a total of  5.00  from holding Song Ho Industrial or generate 0.18% return on investment over 90 days.

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

Song Ho Industrial  vs.  Gold Rain Enterprises

Song Ho Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Gold Rain Enterprises

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gold Rain Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Gold Rain 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 Song Ho and Gold Rain

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

The idea behind Song Ho Industrial and Gold Rain Enterprises 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.