Correlation Between Shui Mu and Pou Chen

Can any of the company-specific risk be diversified away by investing in both Shui Mu and Pou Chen 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 Pou Chen 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 Pou Chen Corp, you can compare the effects of market volatilities on Shui Mu and Pou Chen 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 Pou Chen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shui Mu and Pou Chen.

Diversification Opportunities for Shui Mu and Pou Chen

0.32

Correlation Coefficient

Shui Mu  Pou Chen

Weak diversification

The 3 months correlation between Shui and Pou is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Shui Mu International Co and Pou Chen Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pou Chen Corp 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 Pou Chen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pou Chen Corp has no effect on the direction of Shui Mu i.e., Shui Mu and Pou Chen go up and down completely randomly.

Pair Corralation between Shui Mu and Pou Chen

Assuming the 90 days trading horizon Shui Mu is expected to generate 126.36 times less return on investment than Pou Chen. But when comparing it to its historical volatility, Shui Mu International Co is 2.32 times less risky than Pou Chen. It trades about 0.0 of its potential returns per unit of risk. Pou Chen Corp is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3,450  in Pou Chen Corp on September 1, 2024 and sell it today you would earn a total of  630.00  from holding Pou Chen Corp or generate 18.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Shui Mu International Co  vs.  Pou Chen Corp

Shui Mu International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shui Mu International Co has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pou Chen Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pou Chen Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Pou Chen showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shui Mu and Pou Chen

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

The idea behind Shui Mu International Co and Pou Chen Corp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.