Correlation Between Haima Automobile and Shanghai Rendu

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

By analyzing existing cross correlation between Haima Automobile Group and Shanghai Rendu Biotechnology, you can compare the effects of market volatilities on Haima Automobile and Shanghai Rendu 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 Haima Automobile with a short position of Shanghai Rendu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Haima Automobile and Shanghai Rendu.

Diversification Opportunities for Haima Automobile and Shanghai Rendu

0.6

Correlation Coefficient

Haima Automobile  Shanghai Rendu

Poor diversification

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

Pair Corralation between Haima Automobile and Shanghai Rendu

Assuming the 90 days trading horizon Haima Automobile Group is expected to under-perform the Shanghai Rendu. But the stock apears to be less risky and, when comparing its historical volatility, Haima Automobile Group is 1.05 times less risky than Shanghai Rendu. The stock trades about -0.03 of its potential returns per unit of risk. The Shanghai Rendu Biotechnology is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,740  in Shanghai Rendu Biotechnology on December 26, 2024 and sell it today you would lose (70.00) from holding Shanghai Rendu Biotechnology or give up 1.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

Haima Automobile Group  vs.  Shanghai Rendu Biotechnology

Haima Automobile

Risk-Adjusted Performance

Very Weak

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

Shanghai Rendu Biote

Risk-Adjusted Performance

Weak

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

Pair Trading with Haima Automobile and Shanghai Rendu

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

The idea behind Haima Automobile Group and Shanghai Rendu Biotechnology 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.