Correlation Between Chengdu Xuguang and Shanghai

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

By analyzing existing cross correlation between Chengdu Xuguang Electronics and Shanghai SK Automation, you can compare the effects of market volatilities on Chengdu Xuguang and Shanghai 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 Chengdu Xuguang with a short position of Shanghai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chengdu Xuguang and Shanghai.

Diversification Opportunities for Chengdu Xuguang and Shanghai

0.56

Correlation Coefficient

Chengdu Xuguang  Shanghai

Very weak diversification

The 3 months correlation between Chengdu and Shanghai is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Chengdu Xuguang Electronics and Shanghai SK Automation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai SK Automation and Chengdu Xuguang 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 Chengdu Xuguang Electronics are associated (or correlated) with Shanghai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai SK Automation has no effect on the direction of Chengdu Xuguang i.e., Chengdu Xuguang and Shanghai go up and down completely randomly.

Pair Corralation between Chengdu Xuguang and Shanghai

Assuming the 90 days trading horizon Chengdu Xuguang Electronics is expected to under-perform the Shanghai. But the stock apears to be less risky and, when comparing its historical volatility, Chengdu Xuguang Electronics is 1.04 times less risky than Shanghai. The stock trades about -0.21 of its potential returns per unit of risk. The Shanghai SK Automation is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  4,032  in Shanghai SK Automation on October 6, 2024 and sell it today you would lose (461.00) from holding Shanghai SK Automation or give up 11.43% of portfolio value over 90 days.

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

Chengdu Xuguang Electronics  vs.  Shanghai SK Automation

Chengdu Xuguang Elec

Risk-Adjusted Performance

0 of 100

Very Weak

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

Shanghai SK Automation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai SK Automation 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 Chengdu Xuguang and Shanghai

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

The idea behind Chengdu Xuguang Electronics and Shanghai SK Automation 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 Stocks Directory module to find actively traded stocks across global markets.