Correlation Between Sony Corp and Xiaomi Corp

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

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

Diversification Opportunities for Sony Corp and Xiaomi Corp

-0.11

Correlation Coefficient

Sony Corp  Xiaomi Corp

Good diversification

The 3 months correlation between Sony and Xiaomi is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Sony Corp and Xiaomi Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiaomi Corp ADR and Sony Corp 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 Sony Corp are associated (or correlated) with Xiaomi Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiaomi Corp ADR has no effect on the direction of Sony Corp i.e., Sony Corp and Xiaomi Corp go up and down completely randomly.

Pair Corralation between Sony Corp and Xiaomi Corp

Assuming the 90 days horizon Sony Corp is expected to generate 1.29 times more return on investment than Xiaomi Corp. However, Sony Corp is 1.29 times more volatile than Xiaomi Corp ADR. It trades about 0.15 of its potential returns per unit of risk. Xiaomi Corp ADR is currently generating about 0.04 per unit of risk. If you would invest  1,955  in Sony Corp on September 19, 2024 and sell it today you would earn a total of  232.00  from holding Sony Corp or generate 11.87% return on investment over 90 days.

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

Sony Corp  vs.  Xiaomi Corp ADR

Sony Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sony Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting forward-looking indicators, Sony Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Xiaomi Corp ADR

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xiaomi Corp ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, Xiaomi Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sony Corp and Xiaomi Corp

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

The idea behind Sony Corp and Xiaomi Corp ADR 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.