Correlation Between China National and Shanghai Newtouch

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

Diversification Opportunities for China National and Shanghai Newtouch

0.53

Correlation Coefficient

China National  Shanghai Newtouch

Very weak diversification

The 3 months correlation between China and Shanghai is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding China National Software and Shanghai Newtouch Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Newtouch 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 Newtouch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Newtouch has no effect on the direction of China National i.e., China National and Shanghai Newtouch go up and down completely randomly.

Pair Corralation between China National and Shanghai Newtouch

Assuming the 90 days trading horizon China National Software is expected to under-perform the Shanghai Newtouch. But the stock apears to be less risky and, when comparing its historical volatility, China National Software is 2.22 times less risky than Shanghai Newtouch. The stock trades about -0.05 of its potential returns per unit of risk. The Shanghai Newtouch Software is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,803  in Shanghai Newtouch Software on December 25, 2024 and sell it today you would earn a total of  231.00  from holding Shanghai Newtouch Software or generate 12.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.28%
Values	Daily Returns

China National Software  vs.  Shanghai Newtouch Software

China National Software

Risk-Adjusted Performance

Very Weak

Over the last 90 days China National Software has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shanghai Newtouch

Risk-Adjusted Performance

Modest

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

Pair Trading with China National and Shanghai Newtouch

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

The idea behind China National Software and Shanghai Newtouch Software 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.