Correlation Between Shanghai Metersbonwe and Wanhua Chemical

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

By analyzing existing cross correlation between Shanghai Metersbonwe FashionAccessories and Wanhua Chemical Group, you can compare the effects of market volatilities on Shanghai Metersbonwe and Wanhua Chemical 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 Shanghai Metersbonwe with a short position of Wanhua Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Metersbonwe and Wanhua Chemical.

Diversification Opportunities for Shanghai Metersbonwe and Wanhua Chemical

0.07

Correlation Coefficient

Shanghai Metersbonwe  Wanhua Chemical

Significant diversification

The 3 months correlation between Shanghai and Wanhua is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Metersbonwe FashionAc and Wanhua Chemical Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wanhua Chemical Group and Shanghai Metersbonwe 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 Shanghai Metersbonwe FashionAccessories are associated (or correlated) with Wanhua Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wanhua Chemical Group has no effect on the direction of Shanghai Metersbonwe i.e., Shanghai Metersbonwe and Wanhua Chemical go up and down completely randomly.

Pair Corralation between Shanghai Metersbonwe and Wanhua Chemical

Assuming the 90 days trading horizon Shanghai Metersbonwe FashionAccessories is expected to generate 2.91 times more return on investment than Wanhua Chemical. However, Shanghai Metersbonwe is 2.91 times more volatile than Wanhua Chemical Group. It trades about -0.02 of its potential returns per unit of risk. Wanhua Chemical Group is currently generating about -0.08 per unit of risk. If you would invest  203.00  in Shanghai Metersbonwe FashionAccessories on December 30, 2024 and sell it today you would lose (19.00) from holding Shanghai Metersbonwe FashionAccessories or give up 9.36% of portfolio value over 90 days.

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

Shanghai Metersbonwe FashionAc  vs.  Wanhua Chemical Group

Shanghai Metersbonwe

Risk-Adjusted Performance

Very Weak

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

Wanhua Chemical Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wanhua Chemical Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Shanghai Metersbonwe and Wanhua Chemical

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

The idea behind Shanghai Metersbonwe FashionAccessories and Wanhua Chemical Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.