Correlation Between Shanghai Shibei and Shanghai Newtouch

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

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

Diversification Opportunities for Shanghai Shibei and Shanghai Newtouch

0.49

Correlation Coefficient

Shanghai Shibei  Shanghai Newtouch

Very weak diversification

The 3 months correlation between Shanghai and Shanghai is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Shibei Hi Tech and Shanghai Newtouch Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Newtouch and Shanghai Shibei 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 Shanghai Shibei Hi Tech 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 Shanghai Shibei i.e., Shanghai Shibei and Shanghai Newtouch go up and down completely randomly.

Pair Corralation between Shanghai Shibei and Shanghai Newtouch

Assuming the 90 days trading horizon Shanghai Shibei is expected to generate 119.0 times less return on investment than Shanghai Newtouch. But when comparing it to its historical volatility, Shanghai Shibei Hi Tech is 1.74 times less risky than Shanghai Newtouch. It trades about 0.0 of its potential returns per unit of risk. Shanghai Newtouch Software is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,089  in Shanghai Newtouch Software on October 11, 2024 and sell it today you would earn a total of  353.00  from holding Shanghai Newtouch Software or generate 32.42% return on investment over 90 days.

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

Shanghai Shibei Hi Tech  vs.  Shanghai Newtouch Software

Shanghai Shibei Hi

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Shibei Hi Tech are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Shibei may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Shanghai Newtouch

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Newtouch Software are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Newtouch may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shanghai Shibei and Shanghai Newtouch

The main advantage of trading using opposite Shanghai Shibei and Shanghai Newtouch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Shibei 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 Shanghai Shibei Hi Tech 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.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.