Correlation Between Zhejiang Juhua and Shanghai Putailai

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

By analyzing existing cross correlation between Zhejiang Juhua Co and Shanghai Putailai New, you can compare the effects of market volatilities on Zhejiang Juhua and Shanghai Putailai 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 Zhejiang Juhua with a short position of Shanghai Putailai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Juhua and Shanghai Putailai.

Diversification Opportunities for Zhejiang Juhua and Shanghai Putailai

0.86

Correlation Coefficient

Zhejiang Juhua  Shanghai Putailai

Very poor diversification

The 3 months correlation between Zhejiang and Shanghai is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Juhua Co and Shanghai Putailai New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Putailai New and Zhejiang Juhua 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 Zhejiang Juhua Co are associated (or correlated) with Shanghai Putailai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Putailai New has no effect on the direction of Zhejiang Juhua i.e., Zhejiang Juhua and Shanghai Putailai go up and down completely randomly.

Pair Corralation between Zhejiang Juhua and Shanghai Putailai

Assuming the 90 days trading horizon Zhejiang Juhua Co is expected to generate 0.93 times more return on investment than Shanghai Putailai. However, Zhejiang Juhua Co is 1.08 times less risky than Shanghai Putailai. It trades about 0.25 of its potential returns per unit of risk. Shanghai Putailai New is currently generating about -0.33 per unit of risk. If you would invest  2,059  in Zhejiang Juhua Co on September 23, 2024 and sell it today you would earn a total of  232.00  from holding Zhejiang Juhua Co or generate 11.27% return on investment over 90 days.

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

Zhejiang Juhua Co  vs.  Shanghai Putailai New

Zhejiang Juhua

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Juhua Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Juhua sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Putailai New

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Putailai New are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Putailai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhejiang Juhua and Shanghai Putailai

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

The idea behind Zhejiang Juhua Co and Shanghai Putailai New 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.