Correlation Between Hwabao WP and Shanghai Yaoji

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

By analyzing existing cross correlation between Hwabao WP CSI and Shanghai Yaoji Playing, you can compare the effects of market volatilities on Hwabao WP and Shanghai Yaoji 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 Hwabao WP with a short position of Shanghai Yaoji. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hwabao WP and Shanghai Yaoji.

Diversification Opportunities for Hwabao WP and Shanghai Yaoji

0.35

Correlation Coefficient

Hwabao WP  Shanghai Yaoji

Weak diversification

The 3 months correlation between Hwabao and Shanghai is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Hwabao WP CSI and Shanghai Yaoji Playing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Yaoji Playing and Hwabao WP 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 Hwabao WP CSI are associated (or correlated) with Shanghai Yaoji. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Yaoji Playing has no effect on the direction of Hwabao WP i.e., Hwabao WP and Shanghai Yaoji go up and down completely randomly.

Pair Corralation between Hwabao WP and Shanghai Yaoji

Assuming the 90 days trading horizon Hwabao WP is expected to generate 2.0 times less return on investment than Shanghai Yaoji. But when comparing it to its historical volatility, Hwabao WP CSI is 1.66 times less risky than Shanghai Yaoji. It trades about 0.07 of its potential returns per unit of risk. Shanghai Yaoji Playing is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,870  in Shanghai Yaoji Playing on October 7, 2024 and sell it today you would earn a total of  625.00  from holding Shanghai Yaoji Playing or generate 33.42% return on investment over 90 days.

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

Hwabao WP CSI  vs.  Shanghai Yaoji Playing

Hwabao WP CSI

Risk-Adjusted Performance

0 of 100

Very Weak

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

Shanghai Yaoji Playing

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Hwabao WP and Shanghai Yaoji

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

The idea behind Hwabao WP CSI and Shanghai Yaoji Playing 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.