Correlation Between Huasi Agricultural and Shanghai Yanpu

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

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

Diversification Opportunities for Huasi Agricultural and Shanghai Yanpu

0.58

Correlation Coefficient

Huasi Agricultural  Shanghai Yanpu

Very weak diversification

The 3 months correlation between Huasi and Shanghai is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Huasi Agricultural Development and Shanghai Yanpu Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Yanpu Metal and Huasi Agricultural 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 Huasi Agricultural Development are associated (or correlated) with Shanghai Yanpu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Yanpu Metal has no effect on the direction of Huasi Agricultural i.e., Huasi Agricultural and Shanghai Yanpu go up and down completely randomly.

Pair Corralation between Huasi Agricultural and Shanghai Yanpu

Assuming the 90 days trading horizon Huasi Agricultural is expected to generate 1327.0 times less return on investment than Shanghai Yanpu. In addition to that, Huasi Agricultural is 1.1 times more volatile than Shanghai Yanpu Metal. It trades about 0.0 of its total potential returns per unit of risk. Shanghai Yanpu Metal is currently generating about 0.04 per unit of volatility. If you would invest  2,703  in Shanghai Yanpu Metal on October 22, 2024 and sell it today you would earn a total of  1,096  from holding Shanghai Yanpu Metal or generate 40.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.74%
Values	Daily Returns

Huasi Agricultural Development  vs.  Shanghai Yanpu Metal

Huasi Agricultural

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Huasi Agricultural Development are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Huasi Agricultural may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Shanghai Yanpu Metal

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Yanpu Metal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Yanpu may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Huasi Agricultural and Shanghai Yanpu

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

The idea behind Huasi Agricultural Development and Shanghai Yanpu Metal 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.