Correlation Between SKC and SK Chemicals
Can any of the company-specific risk be diversified away by investing in both SKC and SK Chemicals 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 SKC and SK Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SKC Co and SK Chemicals Co, you can compare the effects of market volatilities on SKC and SK Chemicals 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 SKC with a short position of SK Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of SKC and SK Chemicals.
Diversification Opportunities for SKC and SK Chemicals
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between SKC and 28513K is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding SKC Co and SK Chemicals Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SK Chemicals and SKC 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 SKC Co are associated (or correlated) with SK Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SK Chemicals has no effect on the direction of SKC i.e., SKC and SK Chemicals go up and down completely randomly.
Pair Corralation between SKC and SK Chemicals
Assuming the 90 days trading horizon SKC Co is expected to generate 5.91 times more return on investment than SK Chemicals. However, SKC is 5.91 times more volatile than SK Chemicals Co. It trades about 0.21 of its potential returns per unit of risk. SK Chemicals Co is currently generating about 0.12 per unit of risk. If you would invest 12,880,000 in SKC Co on July 1, 2024 and sell it today you would earn a total of 2,270,000 from holding SKC Co or generate 17.62% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
SKC Co vs. SK Chemicals Co
Performance |
Timeline |
SKC Co |
SK Chemicals |
SKC and SK Chemicals Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with SKC and SK Chemicals
The main advantage of trading using opposite SKC and SK Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SKC position performs unexpectedly, SK Chemicals 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 SK Chemicals will offset losses from the drop in SK Chemicals' long position.The idea behind SKC Co and SK Chemicals Co 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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