Correlation Between Shanghai Phichem and Advanced Micro

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

Diversification Opportunities for Shanghai Phichem and Advanced Micro

0.93

Correlation Coefficient

Shanghai Phichem  Advanced Micro

Almost no diversification

The 3 months correlation between Shanghai and Advanced is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Phichem Material and Advanced Micro Fabrication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Micro Fabri 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 Advanced Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Micro Fabri has no effect on the direction of Shanghai Phichem i.e., Shanghai Phichem and Advanced Micro go up and down completely randomly.

Pair Corralation between Shanghai Phichem and Advanced Micro

Assuming the 90 days trading horizon Shanghai Phichem Material is expected to under-perform the Advanced Micro. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Phichem Material is 1.05 times less risky than Advanced Micro. The stock trades about -0.44 of its potential returns per unit of risk. The Advanced Micro Fabrication is currently generating about -0.32 of returns per unit of risk over similar time horizon. If you would invest  21,247  in Advanced Micro Fabrication on October 6, 2024 and sell it today you would lose (3,094) from holding Advanced Micro Fabrication or give up 14.56% of portfolio value over 90 days.

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

Shanghai Phichem Material  vs.  Advanced Micro Fabrication

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Advanced Micro Fabri

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Shanghai Phichem Material and Advanced Micro Fabrication 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.