Correlation Between Shan Dong and Shantou Wanshun

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

By analyzing existing cross correlation between Shan Dong Dong E and Shantou Wanshun Package, you can compare the effects of market volatilities on Shan Dong and Shantou Wanshun 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 Shan Dong with a short position of Shantou Wanshun. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shan Dong and Shantou Wanshun.

Diversification Opportunities for Shan Dong and Shantou Wanshun

0.59

Correlation Coefficient

Shan Dong  Shantou Wanshun

Very weak diversification

The 3 months correlation between Shan and Shantou is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Shan Dong Dong E and Shantou Wanshun Package in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shantou Wanshun Package and Shan Dong 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 Shan Dong Dong E are associated (or correlated) with Shantou Wanshun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shantou Wanshun Package has no effect on the direction of Shan Dong i.e., Shan Dong and Shantou Wanshun go up and down completely randomly.

Pair Corralation between Shan Dong and Shantou Wanshun

Assuming the 90 days trading horizon Shan Dong Dong E is expected to generate 0.46 times more return on investment than Shantou Wanshun. However, Shan Dong Dong E is 2.18 times less risky than Shantou Wanshun. It trades about 0.03 of its potential returns per unit of risk. Shantou Wanshun Package is currently generating about 0.0 per unit of risk. If you would invest  6,170  in Shan Dong Dong E on September 29, 2024 and sell it today you would earn a total of  152.00  from holding Shan Dong Dong E or generate 2.46% return on investment over 90 days.

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

Shan Dong Dong E  vs.  Shantou Wanshun Package

Shan Dong Dong

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shan Dong Dong E are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shan Dong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shantou Wanshun Package

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shantou Wanshun Package has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shantou Wanshun is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shan Dong and Shantou Wanshun

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

The idea behind Shan Dong Dong E and Shantou Wanshun Package 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.