Correlation Between Shanghai Phichem and Shenzhen Glory

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

By analyzing existing cross correlation between Shanghai Phichem Material and Shenzhen Glory Medical, you can compare the effects of market volatilities on Shanghai Phichem and Shenzhen Glory 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 Shanghai Phichem with a short position of Shenzhen Glory. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Phichem and Shenzhen Glory.

Diversification Opportunities for Shanghai Phichem and Shenzhen Glory

0.72

Correlation Coefficient

Shanghai Phichem  Shenzhen Glory

Poor diversification

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

Pair Corralation between Shanghai Phichem and Shenzhen Glory

Assuming the 90 days trading horizon Shanghai Phichem is expected to generate 1.74 times less return on investment than Shenzhen Glory. But when comparing it to its historical volatility, Shanghai Phichem Material is 1.06 times less risky than Shenzhen Glory. It trades about 0.03 of its potential returns per unit of risk. Shenzhen Glory Medical is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  311.00  in Shenzhen Glory Medical on December 26, 2024 and sell it today you would earn a total of  15.00  from holding Shenzhen Glory Medical or generate 4.82% return on investment over 90 days.

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

Shanghai Phichem Material  vs.  Shenzhen Glory Medical

Shanghai Phichem Material

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Phichem Material are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shanghai Phichem is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shenzhen Glory Medical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Glory Medical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Glory may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Shanghai Phichem and Shenzhen Glory

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

The idea behind Shanghai Phichem Material and Shenzhen Glory Medical 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 Commodity Directory module to find actively traded commodities issued by global exchanges.