Correlation Between Shandong Sanyuan and Bank of Nanjing Co Ltd

Can any of the company-specific risk be diversified away by investing in both Shandong Sanyuan and Bank of Nanjing Co Ltd 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 Shandong Sanyuan and Bank of Nanjing Co Ltd into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shandong Sanyuan Biotechnology and Bank of Nanjing, you can compare the effects of market volatilities on Shandong Sanyuan and Bank of Nanjing Co Ltd 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 Shandong Sanyuan with a short position of Bank of Nanjing Co Ltd. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Sanyuan and Bank of Nanjing Co Ltd.

Diversification Opportunities for Shandong Sanyuan and Bank of Nanjing Co Ltd

0.3

Correlation Coefficient

Shandong Sanyuan  Bank of Nanjing Co Ltd

Weak diversification

The 3 months correlation between Shandong and Bank is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Sanyuan Biotechnology and Bank of Nanjing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Nanjing Co Ltd and Shandong Sanyuan 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 Shandong Sanyuan Biotechnology are associated (or correlated) with Bank of Nanjing Co Ltd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Nanjing Co Ltd has no effect on the direction of Shandong Sanyuan i.e., Shandong Sanyuan and Bank of Nanjing Co Ltd go up and down completely randomly.

Pair Corralation between Shandong Sanyuan and Bank of Nanjing Co Ltd

Assuming the 90 days trading horizon Shandong Sanyuan Biotechnology is expected to under-perform the Bank of Nanjing Co Ltd. In addition to that, Shandong Sanyuan is 2.13 times more volatile than Bank of Nanjing. It trades about -0.06 of its total potential returns per unit of risk. Bank of Nanjing is currently generating about -0.08 per unit of volatility. If you would invest  1,057  in Bank of Nanjing on December 9, 2024 and sell it today you would lose (46.00) from holding Bank of Nanjing or give up 4.35% of portfolio value over 90 days.

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

Shandong Sanyuan Biotechnology  vs.  Bank of Nanjing

Shandong Sanyuan Bio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shandong Sanyuan Biotechnology 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.

Bank of Nanjing Co Ltd

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Shandong Sanyuan and Bank of Nanjing Co Ltd

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

The idea behind Shandong Sanyuan Biotechnology and Bank of Nanjing 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.