Correlation Between Shandong and Shanghai Shibei

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

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

Diversification Opportunities for Shandong and Shanghai Shibei

0.62

Correlation Coefficient

Shandong  Shanghai Shibei

Poor diversification

The 3 months correlation between Shandong and Shanghai is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Hi Speed RoadBridge 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 Shandong 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 Shandong Hi Speed RoadBridge 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 Shandong i.e., Shandong and Shanghai Shibei go up and down completely randomly.

Pair Corralation between Shandong and Shanghai Shibei

Assuming the 90 days trading horizon Shandong Hi Speed RoadBridge is expected to under-perform the Shanghai Shibei. But the stock apears to be less risky and, when comparing its historical volatility, Shandong Hi Speed RoadBridge is 1.94 times less risky than Shanghai Shibei. The stock trades about -0.01 of its potential returns per unit of risk. The Shanghai Shibei Hi Tech is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  490.00  in Shanghai Shibei Hi Tech on December 26, 2024 and sell it today you would lose (9.00) from holding Shanghai Shibei Hi Tech or give up 1.84% of portfolio value over 90 days.

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

Shandong Hi Speed RoadBridge  vs.  Shanghai Shibei Hi Tech

Shandong Hi Speed

Risk-Adjusted Performance

Very Weak

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

Shanghai Shibei Hi

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Shandong and Shanghai Shibei

The main advantage of trading using opposite Shandong and Shanghai Shibei positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shandong 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 Shandong Hi Speed RoadBridge 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.