Correlation Between Shanghai Pudong and Jinlong Machinery

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

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

Diversification Opportunities for Shanghai Pudong and Jinlong Machinery

-0.52

Correlation Coefficient

Shanghai Pudong  Jinlong Machinery

Excellent diversification

The 3 months correlation between Shanghai and Jinlong is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Pudong Development and Jinlong Machinery Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinlong Machinery and Shanghai Pudong 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 Pudong Development are associated (or correlated) with Jinlong Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jinlong Machinery has no effect on the direction of Shanghai Pudong i.e., Shanghai Pudong and Jinlong Machinery go up and down completely randomly.

Pair Corralation between Shanghai Pudong and Jinlong Machinery

Assuming the 90 days trading horizon Shanghai Pudong Development is expected to generate 0.45 times more return on investment than Jinlong Machinery. However, Shanghai Pudong Development is 2.2 times less risky than Jinlong Machinery. It trades about 0.06 of its potential returns per unit of risk. Jinlong Machinery Electronic is currently generating about -0.18 per unit of risk. If you would invest  1,013  in Shanghai Pudong Development on October 25, 2024 and sell it today you would earn a total of  18.00  from holding Shanghai Pudong Development or generate 1.78% return on investment over 90 days.

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

Shanghai Pudong Development  vs.  Jinlong Machinery Electronic

Shanghai Pudong Deve

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Pudong Development are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shanghai Pudong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jinlong Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jinlong Machinery Electronic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shanghai Pudong and Jinlong Machinery

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

The idea behind Shanghai Pudong Development and Jinlong Machinery Electronic 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.