Correlation Between Hengerda New and Shanghai Fudan

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

By analyzing existing cross correlation between Hengerda New Materials and Shanghai Fudan Microelectronics, you can compare the effects of market volatilities on Hengerda New and Shanghai Fudan 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 Hengerda New with a short position of Shanghai Fudan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hengerda New and Shanghai Fudan.

Diversification Opportunities for Hengerda New and Shanghai Fudan

0.84

Correlation Coefficient

Hengerda New  Shanghai Fudan

Very poor diversification

The 3 months correlation between Hengerda and Shanghai is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Hengerda New Materials and Shanghai Fudan Microelectronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Fudan Micro and Hengerda New 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 Hengerda New Materials are associated (or correlated) with Shanghai Fudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Fudan Micro has no effect on the direction of Hengerda New i.e., Hengerda New and Shanghai Fudan go up and down completely randomly.

Pair Corralation between Hengerda New and Shanghai Fudan

Assuming the 90 days trading horizon Hengerda New is expected to generate 1.96 times less return on investment than Shanghai Fudan. But when comparing it to its historical volatility, Hengerda New Materials is 1.51 times less risky than Shanghai Fudan. It trades about 0.13 of its potential returns per unit of risk. Shanghai Fudan Microelectronics is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,427  in Shanghai Fudan Microelectronics on September 20, 2024 and sell it today you would earn a total of  1,553  from holding Shanghai Fudan Microelectronics or generate 63.99% return on investment over 90 days.

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

Hengerda New Materials  vs.  Shanghai Fudan Microelectronic

Hengerda New Materials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hengerda New Materials are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengerda New sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Fudan Micro

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Fudan Microelectronics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Fudan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hengerda New and Shanghai Fudan

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

The idea behind Hengerda New Materials and Shanghai Fudan Microelectronics 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..