Correlation Between Shanghai Broadband and Ningbo Bohui

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

By analyzing existing cross correlation between Shanghai Broadband Technology and Ningbo Bohui Chemical, you can compare the effects of market volatilities on Shanghai Broadband and Ningbo Bohui 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 Broadband with a short position of Ningbo Bohui. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Broadband and Ningbo Bohui.

Diversification Opportunities for Shanghai Broadband and Ningbo Bohui

0.32

Correlation Coefficient

Shanghai Broadband  Ningbo Bohui

Weak diversification

The 3 months correlation between Shanghai and Ningbo is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Broadband Technology and Ningbo Bohui Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Bohui Chemical and Shanghai Broadband 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 Broadband Technology are associated (or correlated) with Ningbo Bohui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Bohui Chemical has no effect on the direction of Shanghai Broadband i.e., Shanghai Broadband and Ningbo Bohui go up and down completely randomly.

Pair Corralation between Shanghai Broadband and Ningbo Bohui

Assuming the 90 days trading horizon Shanghai Broadband Technology is expected to under-perform the Ningbo Bohui. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Broadband Technology is 1.29 times less risky than Ningbo Bohui. The stock trades about -0.05 of its potential returns per unit of risk. The Ningbo Bohui Chemical is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  689.00  in Ningbo Bohui Chemical on December 26, 2024 and sell it today you would earn a total of  132.00  from holding Ningbo Bohui Chemical or generate 19.16% return on investment over 90 days.

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

Shanghai Broadband Technology  vs.  Ningbo Bohui Chemical

Shanghai Broadband

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Broadband Technology 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.

Ningbo Bohui Chemical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Bohui Chemical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Bohui sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Broadband and Ningbo Bohui

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

The idea behind Shanghai Broadband Technology and Ningbo Bohui Chemical 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.