Correlation Between FDC International and Shanghai Commercial

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

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

Diversification Opportunities for FDC International and Shanghai Commercial

0.14

Correlation Coefficient

FDC International  Shanghai Commercial

Average diversification

The 3 months correlation between FDC and Shanghai is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding FDC International Hotels and Shanghai Commercial Savings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Commercial and FDC International 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 FDC International Hotels 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 FDC International i.e., FDC International and Shanghai Commercial go up and down completely randomly.

Pair Corralation between FDC International and Shanghai Commercial

Assuming the 90 days trading horizon FDC International is expected to generate 3.05 times less return on investment than Shanghai Commercial. In addition to that, FDC International is 1.08 times more volatile than Shanghai Commercial Savings. It trades about 0.07 of its total potential returns per unit of risk. Shanghai Commercial Savings is currently generating about 0.24 per unit of volatility. If you would invest  3,720  in Shanghai Commercial Savings on September 25, 2024 and sell it today you would earn a total of  315.00  from holding Shanghai Commercial Savings or generate 8.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

FDC International Hotels  vs.  Shanghai Commercial Savings

FDC International Hotels

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FDC International Hotels are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, FDC International 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

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Commercial Savings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Shanghai Commercial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with FDC International and Shanghai Commercial

The main advantage of trading using opposite FDC International and Shanghai Commercial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FDC International 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 FDC International Hotels 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.