Correlation Between Ningxia Younglight and Shanghai Action

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

By analyzing existing cross correlation between Ningxia Younglight Chemicals and Shanghai Action Education, you can compare the effects of market volatilities on Ningxia Younglight and Shanghai Action 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 Ningxia Younglight with a short position of Shanghai Action. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ningxia Younglight and Shanghai Action.

Diversification Opportunities for Ningxia Younglight and Shanghai Action

-0.4

Correlation Coefficient

Ningxia Younglight  Shanghai Action

Very good diversification

The 3 months correlation between Ningxia and Shanghai is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ningxia Younglight Chemicals and Shanghai Action Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Action Education and Ningxia Younglight 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 Ningxia Younglight Chemicals are associated (or correlated) with Shanghai Action. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Action Education has no effect on the direction of Ningxia Younglight i.e., Ningxia Younglight and Shanghai Action go up and down completely randomly.

Pair Corralation between Ningxia Younglight and Shanghai Action

Assuming the 90 days trading horizon Ningxia Younglight Chemicals is expected to generate 1.62 times more return on investment than Shanghai Action. However, Ningxia Younglight is 1.62 times more volatile than Shanghai Action Education. It trades about 0.06 of its potential returns per unit of risk. Shanghai Action Education is currently generating about 0.01 per unit of risk. If you would invest  696.00  in Ningxia Younglight Chemicals on October 23, 2024 and sell it today you would earn a total of  74.00  from holding Ningxia Younglight Chemicals or generate 10.63% return on investment over 90 days.

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

Ningxia Younglight Chemicals  vs.  Shanghai Action Education

Ningxia Younglight

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ningxia Younglight Chemicals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningxia Younglight sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Action Education

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ningxia Younglight and Shanghai Action

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

The idea behind Ningxia Younglight Chemicals and Shanghai Action Education 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.