Correlation Between North Huajin and Shanghai Shibei

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

By analyzing existing cross correlation between North Huajin Chemical and Shanghai Shibei Hi Tech, you can compare the effects of market volatilities on North Huajin and Shanghai Shibei 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 North Huajin with a short position of Shanghai Shibei. Check out your portfolio center. Please also check ongoing floating volatility patterns of North Huajin and Shanghai Shibei.

Diversification Opportunities for North Huajin and Shanghai Shibei

0.6

Correlation Coefficient

North Huajin  Shanghai Shibei

Poor diversification

The 3 months correlation between North and Shanghai is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding North Huajin Chemical and Shanghai Shibei Hi Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Shibei Hi and North Huajin 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 North Huajin Chemical are associated (or correlated) with Shanghai Shibei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Shibei Hi has no effect on the direction of North Huajin i.e., North Huajin and Shanghai Shibei go up and down completely randomly.

Pair Corralation between North Huajin and Shanghai Shibei

Assuming the 90 days trading horizon North Huajin Chemical is expected to under-perform the Shanghai Shibei. But the stock apears to be less risky and, when comparing its historical volatility, North Huajin Chemical is 1.47 times less risky than Shanghai Shibei. The stock trades about -0.08 of its potential returns per unit of risk. The Shanghai Shibei Hi Tech is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  427.00  in Shanghai Shibei Hi Tech on October 24, 2024 and sell it today you would earn a total of  28.00  from holding Shanghai Shibei Hi Tech or generate 6.56% return on investment over 90 days.

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

North Huajin Chemical  vs.  Shanghai Shibei Hi Tech

North Huajin Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days North Huajin Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shanghai Shibei Hi

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Shibei Hi Tech are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Shibei may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with North Huajin and Shanghai Shibei

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

The idea behind North Huajin Chemical and Shanghai Shibei Hi Tech 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.

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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.