Correlation Between Gan Yuan and Shanghai Shibei

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

By analyzing existing cross correlation between Gan Yuan Foods and Shanghai Shibei Hi Tech, you can compare the effects of market volatilities on Gan Yuan and Shanghai Shibei 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 Gan Yuan with a short position of Shanghai Shibei. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gan Yuan and Shanghai Shibei.

Diversification Opportunities for Gan Yuan and Shanghai Shibei

0.07

Correlation Coefficient

Gan Yuan  Shanghai Shibei

Significant diversification

The 3 months correlation between Gan and Shanghai is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Gan Yuan Foods and Shanghai Shibei Hi Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Shibei Hi and Gan Yuan 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 Gan Yuan Foods are associated (or correlated) with Shanghai Shibei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Shibei Hi has no effect on the direction of Gan Yuan i.e., Gan Yuan and Shanghai Shibei go up and down completely randomly.

Pair Corralation between Gan Yuan and Shanghai Shibei

Assuming the 90 days trading horizon Gan Yuan Foods is expected to generate 0.63 times more return on investment than Shanghai Shibei. However, Gan Yuan Foods is 1.58 times less risky than Shanghai Shibei. It trades about 0.16 of its potential returns per unit of risk. Shanghai Shibei Hi Tech is currently generating about 0.05 per unit of risk. If you would invest  7,040  in Gan Yuan Foods on October 23, 2024 and sell it today you would earn a total of  1,809  from holding Gan Yuan Foods or generate 25.7% return on investment over 90 days.

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

Gan Yuan Foods  vs.  Shanghai Shibei Hi Tech

Gan Yuan Foods

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gan Yuan Foods are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gan Yuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Shibei Hi

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Shibei Hi Tech are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Shibei may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Gan Yuan and Shanghai Shibei

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

The idea behind Gan Yuan Foods and Shanghai Shibei Hi Tech 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.