Correlation Between Shanghai Phichem and Citic Guoan

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

Diversification Opportunities for Shanghai Phichem and Citic Guoan

0.74

Correlation Coefficient

Shanghai Phichem  Citic Guoan

Poor diversification

The 3 months correlation between Shanghai and Citic is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Phichem Material and Citic Guoan Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citic Guoan Wine 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 Citic Guoan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citic Guoan Wine has no effect on the direction of Shanghai Phichem i.e., Shanghai Phichem and Citic Guoan go up and down completely randomly.

Pair Corralation between Shanghai Phichem and Citic Guoan

Assuming the 90 days trading horizon Shanghai Phichem Material is expected to generate 1.28 times more return on investment than Citic Guoan. However, Shanghai Phichem is 1.28 times more volatile than Citic Guoan Wine. It trades about 0.03 of its potential returns per unit of risk. Citic Guoan Wine is currently generating about -0.03 per unit of risk. If you would invest  1,391  in Shanghai Phichem Material on October 9, 2024 and sell it today you would earn a total of  79.00  from holding Shanghai Phichem Material or generate 5.68% 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.  Citic Guoan Wine

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.

Citic Guoan Wine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Citic Guoan Wine has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Citic Guoan 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 Citic Guoan

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

The idea behind Shanghai Phichem Material and Citic Guoan Wine 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..