Correlation Between China Sports and Milkyway Chemical

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

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

Diversification Opportunities for China Sports and Milkyway Chemical

0.79

Correlation Coefficient

China Sports  Milkyway Chemical

Poor diversification

The 3 months correlation between China and Milkyway is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding China Sports Industry and Milkyway Chemical Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Milkyway Chemical Supply and China Sports 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 China Sports Industry are associated (or correlated) with Milkyway Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Milkyway Chemical Supply has no effect on the direction of China Sports i.e., China Sports and Milkyway Chemical go up and down completely randomly.

Pair Corralation between China Sports and Milkyway Chemical

Assuming the 90 days trading horizon China Sports Industry is expected to generate 0.77 times more return on investment than Milkyway Chemical. However, China Sports Industry is 1.3 times less risky than Milkyway Chemical. It trades about 0.23 of its potential returns per unit of risk. Milkyway Chemical Supply is currently generating about 0.15 per unit of risk. If you would invest  656.00  in China Sports Industry on September 17, 2024 and sell it today you would earn a total of  244.00  from holding China Sports Industry or generate 37.2% return on investment over 90 days.

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

China Sports Industry  vs.  Milkyway Chemical Supply

China Sports Industry

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Sports Industry are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Sports sustained solid returns over the last few months and may actually be approaching a breakup point.

Milkyway Chemical Supply

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Milkyway Chemical Supply are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Milkyway Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Sports and Milkyway Chemical

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

The idea behind China Sports Industry and Milkyway Chemical Supply 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.