Correlation Between Western Metal and Shanghai Material

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

By analyzing existing cross correlation between Western Metal Materials and Shanghai Material Trading, you can compare the effects of market volatilities on Western Metal and Shanghai Material 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 Western Metal with a short position of Shanghai Material. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Metal and Shanghai Material.

Diversification Opportunities for Western Metal and Shanghai Material

-0.25

Correlation Coefficient

Western Metal  Shanghai Material

Very good diversification

The 3 months correlation between Western and Shanghai is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Western Metal Materials and Shanghai Material Trading in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Material Trading and Western Metal 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 Western Metal Materials are associated (or correlated) with Shanghai Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Material Trading has no effect on the direction of Western Metal i.e., Western Metal and Shanghai Material go up and down completely randomly.

Pair Corralation between Western Metal and Shanghai Material

Assuming the 90 days trading horizon Western Metal Materials is expected to generate 1.85 times more return on investment than Shanghai Material. However, Western Metal is 1.85 times more volatile than Shanghai Material Trading. It trades about 0.24 of its potential returns per unit of risk. Shanghai Material Trading is currently generating about 0.03 per unit of risk. If you would invest  1,910  in Western Metal Materials on December 26, 2024 and sell it today you would earn a total of  341.00  from holding Western Metal Materials or generate 17.85% return on investment over 90 days.

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

Western Metal Materials  vs.  Shanghai Material Trading

Western Metal Materials

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Material Trading

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Western Metal and Shanghai Material

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

The idea behind Western Metal Materials and Shanghai Material Trading 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.