Correlation Between Shanghai Pudong and China Minsheng

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

Diversification Opportunities for Shanghai Pudong and China Minsheng

0.12

Correlation Coefficient

Shanghai Pudong  China Minsheng

Average diversification

The 3 months correlation between Shanghai and China is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Pudong Development and China Minsheng Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Minsheng Banking 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 China Minsheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Minsheng Banking has no effect on the direction of Shanghai Pudong i.e., Shanghai Pudong and China Minsheng go up and down completely randomly.

Pair Corralation between Shanghai Pudong and China Minsheng

Assuming the 90 days trading horizon Shanghai Pudong Development is expected to generate 1.15 times more return on investment than China Minsheng. However, Shanghai Pudong is 1.15 times more volatile than China Minsheng Banking. It trades about 0.18 of its potential returns per unit of risk. China Minsheng Banking is currently generating about -0.09 per unit of risk. If you would invest  966.00  in Shanghai Pudong Development on October 14, 2024 and sell it today you would earn a total of  47.00  from holding Shanghai Pudong Development or generate 4.87% return on investment over 90 days.

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

Shanghai Pudong Development  vs.  China Minsheng Banking

Shanghai Pudong Deve

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Pudong Development has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

China Minsheng Banking

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shanghai Pudong and China Minsheng

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

The idea behind Shanghai Pudong Development and China Minsheng Banking 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.