Correlation Between SCB X and SC Asset

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

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

Diversification Opportunities for SCB X and SC Asset

-0.56

Correlation Coefficient

SCB X  SC Asset

Excellent diversification

The 3 months correlation between SCB and SC Asset is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding SCB X Public and SC Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SC Asset and SCB X 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 SCB X Public are associated (or correlated) with SC Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SC Asset has no effect on the direction of SCB X i.e., SCB X and SC Asset go up and down completely randomly.

Pair Corralation between SCB X and SC Asset

Assuming the 90 days trading horizon SCB X is expected to generate 27.73 times less return on investment than SC Asset. But when comparing it to its historical volatility, SCB X Public is 41.25 times less risky than SC Asset. It trades about 0.06 of its potential returns per unit of risk. SC Asset is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  374.00  in SC Asset on September 14, 2024 and sell it today you would lose (92.00) from holding SC Asset or give up 24.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

SCB X Public  vs.  SC Asset

SCB X Public

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SCB X Public are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, SCB X is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

SC Asset

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SC Asset has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, SC Asset is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with SCB X and SC Asset

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

The idea behind SCB X Public and SC Asset 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.