Correlation Between Tonghua Grape and Shanghai OPM

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

By analyzing existing cross correlation between Tonghua Grape Wine and Shanghai OPM Biosciences, you can compare the effects of market volatilities on Tonghua Grape and Shanghai OPM 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 Tonghua Grape with a short position of Shanghai OPM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tonghua Grape and Shanghai OPM.

Diversification Opportunities for Tonghua Grape and Shanghai OPM

0.83

Correlation Coefficient

Tonghua Grape  Shanghai OPM

Very poor diversification

The 3 months correlation between Tonghua and Shanghai is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Tonghua Grape Wine and Shanghai OPM Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai OPM Biosciences and Tonghua Grape 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 Tonghua Grape Wine are associated (or correlated) with Shanghai OPM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai OPM Biosciences has no effect on the direction of Tonghua Grape i.e., Tonghua Grape and Shanghai OPM go up and down completely randomly.

Pair Corralation between Tonghua Grape and Shanghai OPM

Assuming the 90 days trading horizon Tonghua Grape is expected to generate 1.34 times less return on investment than Shanghai OPM. But when comparing it to its historical volatility, Tonghua Grape Wine is 1.79 times less risky than Shanghai OPM. It trades about 0.09 of its potential returns per unit of risk. Shanghai OPM Biosciences is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,935  in Shanghai OPM Biosciences on October 2, 2024 and sell it today you would earn a total of  806.00  from holding Shanghai OPM Biosciences or generate 27.46% return on investment over 90 days.

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

Tonghua Grape Wine  vs.  Shanghai OPM Biosciences

Tonghua Grape Wine

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tonghua Grape Wine are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tonghua Grape may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shanghai OPM Biosciences

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai OPM Biosciences are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai OPM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Tonghua Grape and Shanghai OPM

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

The idea behind Tonghua Grape Wine and Shanghai OPM Biosciences 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.