Correlation Between Tsingtao Brewery and Shanghai Rural

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

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

Diversification Opportunities for Tsingtao Brewery and Shanghai Rural

0.43

Correlation Coefficient

Tsingtao Brewery  Shanghai Rural

Very weak diversification

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

Pair Corralation between Tsingtao Brewery and Shanghai Rural

Assuming the 90 days trading horizon Tsingtao Brewery Co is expected to under-perform the Shanghai Rural. In addition to that, Tsingtao Brewery is 1.43 times more volatile than Shanghai Rural Commercial. It trades about -0.02 of its total potential returns per unit of risk. Shanghai Rural Commercial is currently generating about 0.08 per unit of volatility. If you would invest  509.00  in Shanghai Rural Commercial on October 7, 2024 and sell it today you would earn a total of  302.00  from holding Shanghai Rural Commercial or generate 59.33% return on investment over 90 days.

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

Tsingtao Brewery Co  vs.  Shanghai Rural Commercial

Tsingtao Brewery

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tsingtao Brewery Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Tsingtao Brewery is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shanghai Rural Commercial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rural Commercial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Rural may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Tsingtao Brewery and Shanghai Rural

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

The idea behind Tsingtao Brewery Co and Shanghai Rural Commercial 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.