Correlation Between Shandong Polymer and TongFu Microelectronics

Can any of the company-specific risk be diversified away by investing in both Shandong Polymer and TongFu Microelectronics 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 Shandong Polymer and TongFu Microelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shandong Polymer Biochemicals and TongFu Microelectronics Co, you can compare the effects of market volatilities on Shandong Polymer and TongFu Microelectronics 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 Shandong Polymer with a short position of TongFu Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Polymer and TongFu Microelectronics.

Diversification Opportunities for Shandong Polymer and TongFu Microelectronics

0.86

Correlation Coefficient

Shandong Polymer  TongFu Microelectronics

Very poor diversification

The 3 months correlation between Shandong and TongFu is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Polymer Biochemicals and TongFu Microelectronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TongFu Microelectronics and Shandong Polymer 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 Shandong Polymer Biochemicals are associated (or correlated) with TongFu Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TongFu Microelectronics has no effect on the direction of Shandong Polymer i.e., Shandong Polymer and TongFu Microelectronics go up and down completely randomly.

Pair Corralation between Shandong Polymer and TongFu Microelectronics

Assuming the 90 days trading horizon Shandong Polymer Biochemicals is expected to under-perform the TongFu Microelectronics. In addition to that, Shandong Polymer is 1.05 times more volatile than TongFu Microelectronics Co. It trades about -0.21 of its total potential returns per unit of risk. TongFu Microelectronics Co is currently generating about -0.1 per unit of volatility. If you would invest  3,148  in TongFu Microelectronics Co on October 2, 2024 and sell it today you would lose (193.00) from holding TongFu Microelectronics Co or give up 6.13% of portfolio value over 90 days.

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

Shandong Polymer Biochemicals  vs.  TongFu Microelectronics Co

Shandong Polymer Bio

Risk-Adjusted Performance

2 of 100

Weak

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

TongFu Microelectronics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TongFu Microelectronics Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TongFu Microelectronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Polymer and TongFu Microelectronics

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

The idea behind Shandong Polymer Biochemicals and TongFu Microelectronics Co 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.