Correlation Between Shenyang Chemical and Qingdao Foods

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

By analyzing existing cross correlation between Shenyang Chemical Industry and Qingdao Foods Co, you can compare the effects of market volatilities on Shenyang Chemical and Qingdao Foods 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 Shenyang Chemical with a short position of Qingdao Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenyang Chemical and Qingdao Foods.

Diversification Opportunities for Shenyang Chemical and Qingdao Foods

0.82

Correlation Coefficient

Shenyang Chemical  Qingdao Foods

Very poor diversification

The 3 months correlation between Shenyang and Qingdao is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Shenyang Chemical Industry and Qingdao Foods Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qingdao Foods and Shenyang Chemical 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 Shenyang Chemical Industry are associated (or correlated) with Qingdao Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qingdao Foods has no effect on the direction of Shenyang Chemical i.e., Shenyang Chemical and Qingdao Foods go up and down completely randomly.

Pair Corralation between Shenyang Chemical and Qingdao Foods

Assuming the 90 days trading horizon Shenyang Chemical is expected to generate 1.16 times less return on investment than Qingdao Foods. In addition to that, Shenyang Chemical is 1.14 times more volatile than Qingdao Foods Co. It trades about 0.05 of its total potential returns per unit of risk. Qingdao Foods Co is currently generating about 0.07 per unit of volatility. If you would invest  1,192  in Qingdao Foods Co on October 9, 2024 and sell it today you would earn a total of  123.00  from holding Qingdao Foods Co or generate 10.32% return on investment over 90 days.

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

Shenyang Chemical Industry  vs.  Qingdao Foods Co

Shenyang Chemical

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shenyang Chemical Industry are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenyang Chemical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Qingdao Foods

Risk-Adjusted Performance

5 of 100

Insignificant

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

Pair Trading with Shenyang Chemical and Qingdao Foods

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

The idea behind Shenyang Chemical Industry and Qingdao Foods Co 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.