Correlation Between Song Ho and Man Zai

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

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

Diversification Opportunities for Song Ho and Man Zai

0.1

Correlation Coefficient

Song Ho  Man Zai

Average diversification

The 3 months correlation between Song and Man is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Song Ho Industrial and Man Zai Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Man Zai Industrial and Song Ho 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 Song Ho Industrial are associated (or correlated) with Man Zai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Man Zai Industrial has no effect on the direction of Song Ho i.e., Song Ho and Man Zai go up and down completely randomly.

Pair Corralation between Song Ho and Man Zai

Assuming the 90 days trading horizon Song Ho Industrial is expected to under-perform the Man Zai. But the stock apears to be less risky and, when comparing its historical volatility, Song Ho Industrial is 2.88 times less risky than Man Zai. The stock trades about -0.02 of its potential returns per unit of risk. The Man Zai Industrial is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,083  in Man Zai Industrial on March 12, 2024 and sell it today you would earn a total of  4,417  from holding Man Zai Industrial or generate 212.05% return on investment over 90 days.

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

Song Ho Industrial  vs.  Man Zai Industrial

Song Ho Industrial

Risk-Adjusted Performance

1 of 100

Weak

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

Man Zai Industrial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Man Zai Industrial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Man Zai showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Song Ho and Man Zai

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

The idea behind Song Ho Industrial and Man Zai Industrial 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.