Correlation Between Wei Chuan and Shanghai Commercial

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

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

Diversification Opportunities for Wei Chuan and Shanghai Commercial

0.46

Correlation Coefficient

Wei Chuan  Shanghai Commercial

Very weak diversification

The 3 months correlation between Wei and Shanghai is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Wei Chuan Foods and Shanghai Commercial Savings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Commercial and Wei Chuan 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 Wei Chuan Foods are associated (or correlated) with Shanghai Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Commercial has no effect on the direction of Wei Chuan i.e., Wei Chuan and Shanghai Commercial go up and down completely randomly.

Pair Corralation between Wei Chuan and Shanghai Commercial

Assuming the 90 days trading horizon Wei Chuan Foods is expected to under-perform the Shanghai Commercial. But the stock apears to be less risky and, when comparing its historical volatility, Wei Chuan Foods is 2.19 times less risky than Shanghai Commercial. The stock trades about -0.03 of its potential returns per unit of risk. The Shanghai Commercial Savings is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  3,980  in Shanghai Commercial Savings on December 29, 2024 and sell it today you would earn a total of  555.00  from holding Shanghai Commercial Savings or generate 13.94% return on investment over 90 days.

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

Wei Chuan Foods  vs.  Shanghai Commercial Savings

Wei Chuan Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wei Chuan Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Wei Chuan is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Shanghai Commercial

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Commercial Savings are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Shanghai Commercial showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wei Chuan and Shanghai Commercial

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

The idea behind Wei Chuan Foods and Shanghai Commercial Savings 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.