Correlation Between Shantou Wanshun and ChengDu Hi

Can any of the company-specific risk be diversified away by investing in both Shantou Wanshun and ChengDu Hi 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 Shantou Wanshun and ChengDu Hi into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shantou Wanshun Package and ChengDu Hi Tech Development, you can compare the effects of market volatilities on Shantou Wanshun and ChengDu Hi 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 Shantou Wanshun with a short position of ChengDu Hi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shantou Wanshun and ChengDu Hi.

Diversification Opportunities for Shantou Wanshun and ChengDu Hi

0.26

Correlation Coefficient

Shantou Wanshun  ChengDu Hi

Modest diversification

The 3 months correlation between Shantou and ChengDu is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Shantou Wanshun Package and ChengDu Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChengDu Hi Tech and Shantou Wanshun 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 Shantou Wanshun Package are associated (or correlated) with ChengDu Hi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChengDu Hi Tech has no effect on the direction of Shantou Wanshun i.e., Shantou Wanshun and ChengDu Hi go up and down completely randomly.

Pair Corralation between Shantou Wanshun and ChengDu Hi

Assuming the 90 days trading horizon Shantou Wanshun Package is expected to generate 1.33 times more return on investment than ChengDu Hi. However, Shantou Wanshun is 1.33 times more volatile than ChengDu Hi Tech Development. It trades about 0.04 of its potential returns per unit of risk. ChengDu Hi Tech Development is currently generating about -0.16 per unit of risk. If you would invest  493.00  in Shantou Wanshun Package on December 26, 2024 and sell it today you would earn a total of  22.00  from holding Shantou Wanshun Package or generate 4.46% return on investment over 90 days.

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

Shantou Wanshun Package  vs.  ChengDu Hi Tech Development

Shantou Wanshun Package

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shantou Wanshun Package are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shantou Wanshun may actually be approaching a critical reversion point that can send shares even higher in April 2025.

ChengDu Hi Tech

Risk-Adjusted Performance

Very Weak

Over the last 90 days ChengDu Hi Tech Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shantou Wanshun and ChengDu Hi

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

The idea behind Shantou Wanshun Package and ChengDu Hi Tech Development 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.