Correlation Between Shanghai Commercial and ReaLy Development

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

By analyzing existing cross correlation between Shanghai Commercial Savings and ReaLy Development Construction, you can compare the effects of market volatilities on Shanghai Commercial and ReaLy Development 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 Shanghai Commercial with a short position of ReaLy Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Commercial and ReaLy Development.

Diversification Opportunities for Shanghai Commercial and ReaLy Development

0.11

Correlation Coefficient

Shanghai Commercial  ReaLy Development

Average diversification

The 3 months correlation between Shanghai and ReaLy is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Commercial Savings and ReaLy Development Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ReaLy Development and Shanghai Commercial 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 Shanghai Commercial Savings are associated (or correlated) with ReaLy Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ReaLy Development has no effect on the direction of Shanghai Commercial i.e., Shanghai Commercial and ReaLy Development go up and down completely randomly.

Pair Corralation between Shanghai Commercial and ReaLy Development

Assuming the 90 days trading horizon Shanghai Commercial is expected to generate 2.36 times less return on investment than ReaLy Development. But when comparing it to its historical volatility, Shanghai Commercial Savings is 1.22 times less risky than ReaLy Development. It trades about 0.1 of its potential returns per unit of risk. ReaLy Development Construction is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,410  in ReaLy Development Construction on October 26, 2024 and sell it today you would earn a total of  665.00  from holding ReaLy Development Construction or generate 19.5% return on investment over 90 days.

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

Shanghai Commercial Savings  vs.  ReaLy Development Construction

Shanghai Commercial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Commercial Savings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Shanghai Commercial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ReaLy Development

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ReaLy Development Construction are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, ReaLy Development showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Commercial and ReaLy Development

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

The idea behind Shanghai Commercial Savings and ReaLy Development Construction 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.