Correlation Between China Express and Shanghai Jinfeng

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

By analyzing existing cross correlation between China Express Airlines and Shanghai Jinfeng Wine, you can compare the effects of market volatilities on China Express and Shanghai Jinfeng 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 China Express with a short position of Shanghai Jinfeng. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Express and Shanghai Jinfeng.

Diversification Opportunities for China Express and Shanghai Jinfeng

0.5

Correlation Coefficient

China Express  Shanghai Jinfeng

Very weak diversification

The 3 months correlation between China and Shanghai is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding China Express Airlines and Shanghai Jinfeng Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Jinfeng Wine and China Express 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 China Express Airlines are associated (or correlated) with Shanghai Jinfeng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Jinfeng Wine has no effect on the direction of China Express i.e., China Express and Shanghai Jinfeng go up and down completely randomly.

Pair Corralation between China Express and Shanghai Jinfeng

Assuming the 90 days trading horizon China Express Airlines is expected to under-perform the Shanghai Jinfeng. In addition to that, China Express is 1.24 times more volatile than Shanghai Jinfeng Wine. It trades about -0.05 of its total potential returns per unit of risk. Shanghai Jinfeng Wine is currently generating about -0.04 per unit of volatility. If you would invest  559.00  in Shanghai Jinfeng Wine on December 30, 2024 and sell it today you would lose (32.00) from holding Shanghai Jinfeng Wine or give up 5.72% of portfolio value over 90 days.

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

China Express Airlines  vs.  Shanghai Jinfeng Wine

China Express Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Express Airlines 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.

Shanghai Jinfeng Wine

Risk-Adjusted Performance

Very Weak

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

Pair Trading with China Express and Shanghai Jinfeng

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

The idea behind China Express Airlines and Shanghai Jinfeng Wine 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.