Correlation Between SC and GRS

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

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

Diversification Opportunities for SC and GRS

0.96

Correlation Coefficient

SC  GRS

Almost no diversification

The 3 months correlation between SC and GRS is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding SC and GRS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GRS and SC 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 SC are associated (or correlated) with GRS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GRS has no effect on the direction of SC i.e., SC and GRS go up and down completely randomly.

Pair Corralation between SC and GRS

Assuming the 90 days horizon SC is expected to generate 1.24 times less return on investment than GRS. But when comparing it to its historical volatility, SC is 1.22 times less risky than GRS. It trades about 0.22 of its potential returns per unit of risk. GRS is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  28.00  in GRS on September 3, 2024 and sell it today you would earn a total of  28.00  from holding GRS or generate 100.0% return on investment over 90 days.

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

SC  vs.  GRS

SC

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SC are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SC exhibited solid returns over the last few months and may actually be approaching a breakup point.

GRS

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GRS are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, GRS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SC and GRS

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

The idea behind SC and GRS 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.