Correlation Between Shandong Sanyuan and China Satellite

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

Diversification Opportunities for Shandong Sanyuan and China Satellite

0.26

Correlation Coefficient

Shandong Sanyuan  China Satellite

Modest diversification

The 3 months correlation between Shandong and China is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Sanyuan Biotechnology and China Satellite Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Satellite Comm 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 China Satellite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Satellite Comm has no effect on the direction of Shandong Sanyuan i.e., Shandong Sanyuan and China Satellite go up and down completely randomly.

Pair Corralation between Shandong Sanyuan and China Satellite

Assuming the 90 days trading horizon Shandong Sanyuan Biotechnology is expected to generate 1.04 times more return on investment than China Satellite. However, Shandong Sanyuan is 1.04 times more volatile than China Satellite Communications. It trades about -0.31 of its potential returns per unit of risk. China Satellite Communications is currently generating about -0.4 per unit of risk. If you would invest  2,935  in Shandong Sanyuan Biotechnology on October 11, 2024 and sell it today you would lose (429.00) from holding Shandong Sanyuan Biotechnology or give up 14.62% 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.  China Satellite Communications

Shandong Sanyuan Bio

Risk-Adjusted Performance

0 of 100

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.

China Satellite Comm

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Satellite Communications are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Satellite sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Sanyuan and China Satellite

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

The idea behind Shandong Sanyuan Biotechnology and China Satellite Communications 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.