Correlation Between Shan Dong and Caihong Display

Can any of the company-specific risk be diversified away by investing in both Shan Dong and Caihong Display 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 Caihong Display 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 Caihong Display Devices, you can compare the effects of market volatilities on Shan Dong and Caihong Display 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 Caihong Display. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shan Dong and Caihong Display.

Diversification Opportunities for Shan Dong and Caihong Display

0.84

Correlation Coefficient

Shan Dong  Caihong Display

Very poor diversification

The 3 months correlation between Shan and Caihong is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Shan Dong Dong E and Caihong Display Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caihong Display Devices 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 Caihong Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caihong Display Devices has no effect on the direction of Shan Dong i.e., Shan Dong and Caihong Display go up and down completely randomly.

Pair Corralation between Shan Dong and Caihong Display

Assuming the 90 days trading horizon Shan Dong is expected to generate 5.44 times less return on investment than Caihong Display. But when comparing it to its historical volatility, Shan Dong Dong E is 1.49 times less risky than Caihong Display. It trades about 0.07 of its potential returns per unit of risk. Caihong Display Devices is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  741.00  in Caihong Display Devices on September 20, 2024 and sell it today you would earn a total of  91.00  from holding Caihong Display Devices or generate 12.28% return on investment over 90 days.

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

Shan Dong Dong E  vs.  Caihong Display Devices

Shan Dong Dong

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shan Dong Dong E are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shan Dong sustained solid returns over the last few months and may actually be approaching a breakup point.

Caihong Display Devices

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caihong Display Devices are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Caihong Display sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shan Dong and Caihong Display

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

The idea behind Shan Dong Dong E and Caihong Display Devices 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.