Correlation Between Xinjiang Communications and Shanghai Lingyun

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

By analyzing existing cross correlation between Xinjiang Communications Construction and Shanghai Lingyun Industries, you can compare the effects of market volatilities on Xinjiang Communications and Shanghai Lingyun 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 Xinjiang Communications with a short position of Shanghai Lingyun. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xinjiang Communications and Shanghai Lingyun.

Diversification Opportunities for Xinjiang Communications and Shanghai Lingyun

0.8

Correlation Coefficient

Xinjiang Communications  Shanghai Lingyun

Very poor diversification

The 3 months correlation between Xinjiang and Shanghai is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Xinjiang Communications Constr and Shanghai Lingyun Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Lingyun Ind and Xinjiang Communications 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 Xinjiang Communications Construction are associated (or correlated) with Shanghai Lingyun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Lingyun Ind has no effect on the direction of Xinjiang Communications i.e., Xinjiang Communications and Shanghai Lingyun go up and down completely randomly.

Pair Corralation between Xinjiang Communications and Shanghai Lingyun

Assuming the 90 days trading horizon Xinjiang Communications is expected to generate 1.12 times less return on investment than Shanghai Lingyun. But when comparing it to its historical volatility, Xinjiang Communications Construction is 1.3 times less risky than Shanghai Lingyun. It trades about 0.17 of its potential returns per unit of risk. Shanghai Lingyun Industries is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  29.00  in Shanghai Lingyun Industries on September 5, 2024 and sell it today you would earn a total of  11.00  from holding Shanghai Lingyun Industries or generate 37.93% return on investment over 90 days.

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

Xinjiang Communications Constr  vs.  Shanghai Lingyun Industries

Xinjiang Communications

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Communications Construction are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Lingyun Ind

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Lingyun Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Lingyun sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xinjiang Communications and Shanghai Lingyun

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

The idea behind Xinjiang Communications Construction and Shanghai Lingyun Industries 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.