Correlation Between Ningbo Tech and Shanghai Putailai

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

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

Diversification Opportunities for Ningbo Tech and Shanghai Putailai

0.9

Correlation Coefficient

Ningbo Tech  Shanghai Putailai

Almost no diversification

The 3 months correlation between Ningbo and Shanghai is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Tech Bank Co and Shanghai Putailai New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Putailai New and Ningbo Tech 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 Ningbo Tech Bank Co are associated (or correlated) with Shanghai Putailai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Putailai New has no effect on the direction of Ningbo Tech i.e., Ningbo Tech and Shanghai Putailai go up and down completely randomly.

Pair Corralation between Ningbo Tech and Shanghai Putailai

Assuming the 90 days trading horizon Ningbo Tech Bank Co is expected to generate 0.95 times more return on investment than Shanghai Putailai. However, Ningbo Tech Bank Co is 1.06 times less risky than Shanghai Putailai. It trades about -0.02 of its potential returns per unit of risk. Shanghai Putailai New is currently generating about -0.04 per unit of risk. If you would invest  390.00  in Ningbo Tech Bank Co on October 11, 2024 and sell it today you would lose (104.00) from holding Ningbo Tech Bank Co or give up 26.67% of portfolio value over 90 days.

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

Ningbo Tech Bank Co  vs.  Shanghai Putailai New

Ningbo Tech Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Tech Bank Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Tech sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Putailai New

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Ningbo Tech and Shanghai Putailai

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

The idea behind Ningbo Tech Bank Co and Shanghai Putailai New 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.