Correlation Between Sony Group and Xiaomi Corp

Can any of the company-specific risk be diversified away by investing in both Sony Group 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 Group 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 Group Corp and Xiaomi Corp ADR, you can compare the effects of market volatilities on Sony Group 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 Group with a short position of Xiaomi Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sony Group and Xiaomi Corp.

Diversification Opportunities for Sony Group and Xiaomi Corp

-0.77

Correlation Coefficient

Sony Group  Xiaomi Corp

Pay attention - limited upside

The 3 months correlation between Sony and Xiaomi is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Sony Group 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 Group 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 Group 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 Group i.e., Sony Group and Xiaomi Corp go up and down completely randomly.

Pair Corralation between Sony Group and Xiaomi Corp

Given the investment horizon of 90 days Sony Group Corp is expected to under-perform the Xiaomi Corp. But the stock apears to be less risky and, when comparing its historical volatility, Sony Group Corp is 2.65 times less risky than Xiaomi Corp. The stock trades about -0.23 of its potential returns per unit of risk. The Xiaomi Corp ADR is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  771.00  in Xiaomi Corp ADR on February 2, 2024 and sell it today you would earn a total of  319.00  from holding Xiaomi Corp ADR or generate 41.37% return on investment over 90 days.

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

Sony Group Corp  vs.  Xiaomi Corp ADR

Sony Group Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sony Group Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Xiaomi Corp ADR

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xiaomi Corp ADR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting fundamental indicators, Xiaomi Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sony Group and Xiaomi Corp

The main advantage of trading using opposite Sony Group and Xiaomi Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sony Group 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 Group 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.