Correlation Between Shanghai Phichem and DR

Can any of the company-specific risk be diversified away by investing in both Shanghai Phichem and DR 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 DR 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 DR Limited, you can compare the effects of market volatilities on Shanghai Phichem and DR 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 DR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Phichem and DR.

Diversification Opportunities for Shanghai Phichem and DR

0.73

Correlation Coefficient

Shanghai Phichem  DR

Poor diversification

The 3 months correlation between Shanghai and DR is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Phichem Material and DR Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DR Limited 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 DR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DR Limited has no effect on the direction of Shanghai Phichem i.e., Shanghai Phichem and DR go up and down completely randomly.

Pair Corralation between Shanghai Phichem and DR

Assuming the 90 days trading horizon Shanghai Phichem Material is expected to under-perform the DR. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Phichem Material is 1.07 times less risky than DR. The stock trades about -0.35 of its potential returns per unit of risk. The DR Limited is currently generating about -0.2 of returns per unit of risk over similar time horizon. If you would invest  2,460  in DR Limited on October 9, 2024 and sell it today you would lose (239.00) from holding DR Limited or give up 9.72% of portfolio value over 90 days.

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

Shanghai Phichem Material  vs.  DR Limited

Shanghai Phichem Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Phichem Material has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

DR Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DR Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, DR is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shanghai Phichem and DR

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

The idea behind Shanghai Phichem Material and DR Limited 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.