Correlation Between Shandong and Shanghai Broadband

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

Diversification Opportunities for Shandong and Shanghai Broadband

0.51

Correlation Coefficient

Shandong  Shanghai Broadband

Very weak diversification

The 3 months correlation between Shandong and Shanghai is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Hi Speed RoadBridge and Shanghai Broadband Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Broadband 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 Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Broadband has no effect on the direction of Shandong i.e., Shandong and Shanghai Broadband go up and down completely randomly.

Pair Corralation between Shandong and Shanghai Broadband

Assuming the 90 days trading horizon Shandong Hi Speed RoadBridge is expected to under-perform the Shanghai Broadband. But the stock apears to be less risky and, when comparing its historical volatility, Shandong Hi Speed RoadBridge is 1.29 times less risky than Shanghai Broadband. The stock trades about -0.06 of its potential returns per unit of risk. The Shanghai Broadband Technology is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  285.00  in Shanghai Broadband Technology on October 6, 2024 and sell it today you would earn a total of  22.00  from holding Shanghai Broadband Technology or generate 7.72% return on investment over 90 days.

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

Shandong Hi Speed RoadBridge  vs.  Shanghai Broadband Technology

Shandong Hi Speed

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shanghai Broadband

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Broadband Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Broadband may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shandong and Shanghai Broadband

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

The idea behind Shandong Hi Speed RoadBridge and Shanghai Broadband Technology 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.