Correlation Between WPG Holdings and Shenmao Technology

Can any of the company-specific risk be diversified away by investing in both WPG Holdings and Shenmao Technology 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 WPG Holdings and Shenmao Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between WPG Holdings and Shenmao Technology, you can compare the effects of market volatilities on WPG Holdings and Shenmao Technology 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 WPG Holdings with a short position of Shenmao Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of WPG Holdings and Shenmao Technology.

Diversification Opportunities for WPG Holdings and Shenmao Technology

0.68

Correlation Coefficient

WPG Holdings  Shenmao Technology

Poor diversification

The 3 months correlation between WPG and Shenmao is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding WPG Holdings and Shenmao Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenmao Technology and WPG Holdings 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 WPG Holdings are associated (or correlated) with Shenmao Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenmao Technology has no effect on the direction of WPG Holdings i.e., WPG Holdings and Shenmao Technology go up and down completely randomly.

Pair Corralation between WPG Holdings and Shenmao Technology

Assuming the 90 days trading horizon WPG Holdings is expected to generate 1.17 times less return on investment than Shenmao Technology. But when comparing it to its historical volatility, WPG Holdings is 1.34 times less risky than Shenmao Technology. It trades about 0.05 of its potential returns per unit of risk. Shenmao Technology is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,220  in Shenmao Technology on October 11, 2024 and sell it today you would earn a total of  2,040  from holding Shenmao Technology or generate 48.34% return on investment over 90 days.

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

WPG Holdings  vs.  Shenmao Technology

WPG Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WPG Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Shenmao Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenmao Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with WPG Holdings and Shenmao Technology

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

The idea behind WPG Holdings and Shenmao Technology 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.