Correlation Between Shanghai Pudong and Gansu Mogao

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

Diversification Opportunities for Shanghai Pudong and Gansu Mogao

-0.59

Correlation Coefficient

Shanghai Pudong  Gansu Mogao

Excellent diversification

The 3 months correlation between Shanghai and Gansu is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Pudong Development and Gansu Mogao Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gansu Mogao Industrial 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 Gansu Mogao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gansu Mogao Industrial has no effect on the direction of Shanghai Pudong i.e., Shanghai Pudong and Gansu Mogao go up and down completely randomly.

Pair Corralation between Shanghai Pudong and Gansu Mogao

Assuming the 90 days trading horizon Shanghai Pudong is expected to generate 1.29 times less return on investment than Gansu Mogao. But when comparing it to its historical volatility, Shanghai Pudong Development is 2.14 times less risky than Gansu Mogao. It trades about 0.04 of its potential returns per unit of risk. Gansu Mogao Industrial is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  467.00  in Gansu Mogao Industrial on December 25, 2024 and sell it today you would earn a total of  9.00  from holding Gansu Mogao Industrial or generate 1.93% 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.  Gansu Mogao Industrial

Shanghai Pudong Deve

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Pudong Development are ranked lower than 3 (%) 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.

Gansu Mogao Industrial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Mogao Industrial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Gansu Mogao 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 Gansu Mogao

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

The idea behind Shanghai Pudong Development and Gansu Mogao Industrial 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.