Correlation Between Gifore Agricultural and Shanghai Shuixing

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

By analyzing existing cross correlation between Gifore Agricultural Machinery and Shanghai Shuixing Home, you can compare the effects of market volatilities on Gifore Agricultural and Shanghai Shuixing 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 Gifore Agricultural with a short position of Shanghai Shuixing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gifore Agricultural and Shanghai Shuixing.

Diversification Opportunities for Gifore Agricultural and Shanghai Shuixing

0.89

Correlation Coefficient

Gifore Agricultural  Shanghai Shuixing

Very poor diversification

The 3 months correlation between Gifore and Shanghai is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Gifore Agricultural Machinery and Shanghai Shuixing Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Shuixing Home and Gifore Agricultural 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 Gifore Agricultural Machinery are associated (or correlated) with Shanghai Shuixing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Shuixing Home has no effect on the direction of Gifore Agricultural i.e., Gifore Agricultural and Shanghai Shuixing go up and down completely randomly.

Pair Corralation between Gifore Agricultural and Shanghai Shuixing

Assuming the 90 days trading horizon Gifore Agricultural is expected to generate 1.29 times less return on investment than Shanghai Shuixing. But when comparing it to its historical volatility, Gifore Agricultural Machinery is 1.21 times less risky than Shanghai Shuixing. It trades about 0.14 of its potential returns per unit of risk. Shanghai Shuixing Home is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,309  in Shanghai Shuixing Home on September 19, 2024 and sell it today you would earn a total of  283.00  from holding Shanghai Shuixing Home or generate 21.62% return on investment over 90 days.

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

Gifore Agricultural Machinery  vs.  Shanghai Shuixing Home

Gifore Agricultural

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gifore Agricultural Machinery are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gifore Agricultural sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Shuixing Home

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Gifore Agricultural and Shanghai Shuixing

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

The idea behind Gifore Agricultural Machinery and Shanghai Shuixing Home 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.