Correlation Between Shandong Sino-Agri and Changchun BCHT

Can any of the company-specific risk be diversified away by investing in both Shandong Sino-Agri and Changchun BCHT 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 Shandong Sino-Agri and Changchun BCHT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shandong Sino Agri United and Changchun BCHT Biotechnology, you can compare the effects of market volatilities on Shandong Sino-Agri and Changchun BCHT 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 Shandong Sino-Agri with a short position of Changchun BCHT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Sino-Agri and Changchun BCHT.

Diversification Opportunities for Shandong Sino-Agri and Changchun BCHT

0.72

Correlation Coefficient

Shandong Sino-Agri  Changchun BCHT

Poor diversification

The 3 months correlation between Shandong and Changchun is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Sino Agri United and Changchun BCHT Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun BCHT Biote and Shandong Sino-Agri 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 Shandong Sino Agri United are associated (or correlated) with Changchun BCHT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun BCHT Biote has no effect on the direction of Shandong Sino-Agri i.e., Shandong Sino-Agri and Changchun BCHT go up and down completely randomly.

Pair Corralation between Shandong Sino-Agri and Changchun BCHT

Assuming the 90 days trading horizon Shandong Sino Agri United is expected to generate 0.89 times more return on investment than Changchun BCHT. However, Shandong Sino Agri United is 1.13 times less risky than Changchun BCHT. It trades about 0.22 of its potential returns per unit of risk. Changchun BCHT Biotechnology is currently generating about 0.07 per unit of risk. If you would invest  1,139  in Shandong Sino Agri United on September 2, 2024 and sell it today you would earn a total of  658.00  from holding Shandong Sino Agri United or generate 57.77% return on investment over 90 days.

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

Shandong Sino Agri United  vs.  Changchun BCHT Biotechnology

Shandong Sino Agri

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Sino Agri United are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Sino-Agri sustained solid returns over the last few months and may actually be approaching a breakup point.

Changchun BCHT Biote

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun BCHT Biotechnology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun BCHT sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Sino-Agri and Changchun BCHT

The main advantage of trading using opposite Shandong Sino-Agri and Changchun BCHT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shandong Sino-Agri position performs unexpectedly, Changchun BCHT 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 Changchun BCHT will offset losses from the drop in Changchun BCHT's long position.

The idea behind Shandong Sino Agri United and Changchun BCHT 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.