Correlation Between Shui Mu and New Palace

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

By analyzing existing cross correlation between Shui Mu International Co and New Palace International, you can compare the effects of market volatilities on Shui Mu and New Palace 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 Shui Mu with a short position of New Palace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shui Mu and New Palace.

Diversification Opportunities for Shui Mu and New Palace

0.58

Correlation Coefficient

Shui Mu  New Palace

Very weak diversification

The 3 months correlation between Shui and New is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Shui Mu International Co and New Palace International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Palace International and Shui Mu 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 Shui Mu International Co are associated (or correlated) with New Palace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Palace International has no effect on the direction of Shui Mu i.e., Shui Mu and New Palace go up and down completely randomly.

Pair Corralation between Shui Mu and New Palace

Assuming the 90 days trading horizon Shui Mu is expected to generate 5.01 times less return on investment than New Palace. But when comparing it to its historical volatility, Shui Mu International Co is 2.13 times less risky than New Palace. It trades about 0.01 of its potential returns per unit of risk. New Palace International is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,245  in New Palace International on September 3, 2024 and sell it today you would earn a total of  50.00  from holding New Palace International or generate 2.23% return on investment over 90 days.

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

Shui Mu International Co  vs.  New Palace International

Shui Mu International

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shui Mu International Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Shui Mu is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

New Palace International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New Palace International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, New Palace 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 Shui Mu and New Palace

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

The idea behind Shui Mu International Co and New Palace International 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.