Correlation Between Guangdong Qunxing and Shanghai Rendu

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

By analyzing existing cross correlation between Guangdong Qunxing Toys and Shanghai Rendu Biotechnology, you can compare the effects of market volatilities on Guangdong Qunxing and Shanghai Rendu 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 Guangdong Qunxing with a short position of Shanghai Rendu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Qunxing and Shanghai Rendu.

Diversification Opportunities for Guangdong Qunxing and Shanghai Rendu

0.45

Correlation Coefficient

Guangdong Qunxing  Shanghai Rendu

Very weak diversification

The 3 months correlation between Guangdong and Shanghai is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Qunxing Toys and Shanghai Rendu Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Rendu Biote and Guangdong Qunxing 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 Guangdong Qunxing Toys are associated (or correlated) with Shanghai Rendu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Rendu Biote has no effect on the direction of Guangdong Qunxing i.e., Guangdong Qunxing and Shanghai Rendu go up and down completely randomly.

Pair Corralation between Guangdong Qunxing and Shanghai Rendu

Assuming the 90 days trading horizon Guangdong Qunxing is expected to generate 1.14 times less return on investment than Shanghai Rendu. But when comparing it to its historical volatility, Guangdong Qunxing Toys is 1.22 times less risky than Shanghai Rendu. It trades about 0.23 of its potential returns per unit of risk. Shanghai Rendu Biotechnology is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,505  in Shanghai Rendu Biotechnology on August 31, 2024 and sell it today you would earn a total of  1,787  from holding Shanghai Rendu Biotechnology or generate 71.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.28%
Values	Daily Returns

Guangdong Qunxing Toys  vs.  Shanghai Rendu Biotechnology

Guangdong Qunxing Toys

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Qunxing Toys are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Qunxing sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Rendu Biote

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rendu Biotechnology are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Rendu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Qunxing and Shanghai Rendu

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

The idea behind Guangdong Qunxing Toys and Shanghai Rendu Biotechnology 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.