Correlation Between ChengDu Hi and Shanghai Yanpu

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

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

Diversification Opportunities for ChengDu Hi and Shanghai Yanpu

-0.19

Correlation Coefficient

ChengDu Hi  Shanghai Yanpu

Good diversification

The 3 months correlation between ChengDu and Shanghai is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding ChengDu Hi Tech Development and Shanghai Yanpu Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Yanpu Metal and ChengDu Hi 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 ChengDu Hi Tech Development are associated (or correlated) with Shanghai Yanpu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Yanpu Metal has no effect on the direction of ChengDu Hi i.e., ChengDu Hi and Shanghai Yanpu go up and down completely randomly.

Pair Corralation between ChengDu Hi and Shanghai Yanpu

Assuming the 90 days trading horizon ChengDu Hi Tech Development is expected to under-perform the Shanghai Yanpu. In addition to that, ChengDu Hi is 1.12 times more volatile than Shanghai Yanpu Metal. It trades about -0.15 of its total potential returns per unit of risk. Shanghai Yanpu Metal is currently generating about 0.08 per unit of volatility. If you would invest  3,775  in Shanghai Yanpu Metal on December 27, 2024 and sell it today you would earn a total of  372.00  from holding Shanghai Yanpu Metal or generate 9.85% return on investment over 90 days.

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

ChengDu Hi Tech Development  vs.  Shanghai Yanpu Metal

ChengDu Hi Tech

Risk-Adjusted Performance

Very Weak

Over the last 90 days ChengDu Hi Tech Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shanghai Yanpu Metal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Yanpu Metal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Yanpu may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ChengDu Hi and Shanghai Yanpu

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

The idea behind ChengDu Hi Tech Development and Shanghai Yanpu Metal 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.