Correlation Between Dezhan HealthCare and Shanghai Rongtai

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

By analyzing existing cross correlation between Dezhan HealthCare Co and Shanghai Rongtai Health, you can compare the effects of market volatilities on Dezhan HealthCare and Shanghai Rongtai 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 Dezhan HealthCare with a short position of Shanghai Rongtai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dezhan HealthCare and Shanghai Rongtai.

Diversification Opportunities for Dezhan HealthCare and Shanghai Rongtai

0.88

Correlation Coefficient

Dezhan HealthCare  Shanghai Rongtai

Very poor diversification

The 3 months correlation between Dezhan and Shanghai is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Dezhan HealthCare Co and Shanghai Rongtai Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Rongtai Health and Dezhan HealthCare 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 Dezhan HealthCare Co are associated (or correlated) with Shanghai Rongtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Rongtai Health has no effect on the direction of Dezhan HealthCare i.e., Dezhan HealthCare and Shanghai Rongtai go up and down completely randomly.

Pair Corralation between Dezhan HealthCare and Shanghai Rongtai

Assuming the 90 days trading horizon Dezhan HealthCare Co is expected to generate 1.19 times more return on investment than Shanghai Rongtai. However, Dezhan HealthCare is 1.19 times more volatile than Shanghai Rongtai Health. It trades about 0.01 of its potential returns per unit of risk. Shanghai Rongtai Health is currently generating about -0.01 per unit of risk. If you would invest  366.00  in Dezhan HealthCare Co on September 30, 2024 and sell it today you would lose (23.00) from holding Dezhan HealthCare Co or give up 6.28% of portfolio value over 90 days.

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

Dezhan HealthCare Co  vs.  Shanghai Rongtai Health

Dezhan HealthCare

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dezhan HealthCare Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dezhan HealthCare sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Rongtai Health

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rongtai Health are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shanghai Rongtai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dezhan HealthCare and Shanghai Rongtai

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

The idea behind Dezhan HealthCare Co and Shanghai Rongtai Health 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.