Correlation Between Qingdao Foods and Shanghai Jinfeng

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

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

Diversification Opportunities for Qingdao Foods and Shanghai Jinfeng

0.94

Correlation Coefficient

Qingdao Foods  Shanghai Jinfeng

Almost no diversification

The 3 months correlation between Qingdao and Shanghai is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Qingdao Foods Co and Shanghai Jinfeng Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Jinfeng Wine and Qingdao Foods 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 Qingdao Foods Co are associated (or correlated) with Shanghai Jinfeng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Jinfeng Wine has no effect on the direction of Qingdao Foods i.e., Qingdao Foods and Shanghai Jinfeng go up and down completely randomly.

Pair Corralation between Qingdao Foods and Shanghai Jinfeng

Assuming the 90 days trading horizon Qingdao Foods Co is expected to generate 0.78 times more return on investment than Shanghai Jinfeng. However, Qingdao Foods Co is 1.29 times less risky than Shanghai Jinfeng. It trades about -0.05 of its potential returns per unit of risk. Shanghai Jinfeng Wine is currently generating about -0.04 per unit of risk. If you would invest  1,373  in Qingdao Foods Co on December 25, 2024 and sell it today you would lose (64.00) from holding Qingdao Foods Co or give up 4.66% of portfolio value over 90 days.

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

Qingdao Foods Co  vs.  Shanghai Jinfeng Wine

Qingdao Foods

Risk-Adjusted Performance

Very Weak

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

Shanghai Jinfeng Wine

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Qingdao Foods and Shanghai Jinfeng

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

The idea behind Qingdao Foods Co and Shanghai Jinfeng Wine 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.