Correlation Between China National and Shanghai Junshi

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

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

Diversification Opportunities for China National and Shanghai Junshi

0.43

Correlation Coefficient

China National  Shanghai Junshi

Very weak diversification

The 3 months correlation between China and Shanghai is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding China National Software and Shanghai Junshi Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Junshi Bios and China National 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 China National Software are associated (or correlated) with Shanghai Junshi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Junshi Bios has no effect on the direction of China National i.e., China National and Shanghai Junshi go up and down completely randomly.

Pair Corralation between China National and Shanghai Junshi

Assuming the 90 days trading horizon China National Software is expected to generate 1.87 times more return on investment than Shanghai Junshi. However, China National is 1.87 times more volatile than Shanghai Junshi Biosciences. It trades about -0.17 of its potential returns per unit of risk. Shanghai Junshi Biosciences is currently generating about -0.33 per unit of risk. If you would invest  5,043  in China National Software on October 22, 2024 and sell it today you would lose (503.00) from holding China National Software or give up 9.97% of portfolio value over 90 days.

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

China National Software  vs.  Shanghai Junshi Biosciences

China National Software

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China National Software are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China National sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Junshi Bios

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Junshi Biosciences 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 China National and Shanghai Junshi

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

The idea behind China National Software and Shanghai Junshi 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.