Correlation Between Shanghai Jinfeng and Guangdong Shenglu

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

By analyzing existing cross correlation between Shanghai Jinfeng Wine and Guangdong Shenglu Telecommunication, you can compare the effects of market volatilities on Shanghai Jinfeng and Guangdong Shenglu 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 Jinfeng with a short position of Guangdong Shenglu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Jinfeng and Guangdong Shenglu.

Diversification Opportunities for Shanghai Jinfeng and Guangdong Shenglu

0.79

Correlation Coefficient

Shanghai Jinfeng  Guangdong Shenglu

Poor diversification

The 3 months correlation between Shanghai and Guangdong is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Jinfeng Wine and Guangdong Shenglu Telecommunic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Shenglu and Shanghai Jinfeng 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 Jinfeng Wine are associated (or correlated) with Guangdong Shenglu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Shenglu has no effect on the direction of Shanghai Jinfeng i.e., Shanghai Jinfeng and Guangdong Shenglu go up and down completely randomly.

Pair Corralation between Shanghai Jinfeng and Guangdong Shenglu

Assuming the 90 days trading horizon Shanghai Jinfeng Wine is expected to generate 1.05 times more return on investment than Guangdong Shenglu. However, Shanghai Jinfeng is 1.05 times more volatile than Guangdong Shenglu Telecommunication. It trades about 0.17 of its potential returns per unit of risk. Guangdong Shenglu Telecommunication is currently generating about 0.15 per unit of risk. If you would invest  461.00  in Shanghai Jinfeng Wine on September 22, 2024 and sell it today you would earn a total of  179.00  from holding Shanghai Jinfeng Wine or generate 38.83% return on investment over 90 days.

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

Shanghai Jinfeng Wine  vs.  Guangdong Shenglu Telecommunic

Shanghai Jinfeng Wine

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Jinfeng Wine are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Jinfeng sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangdong Shenglu

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Shenglu Telecommunication are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Shenglu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Jinfeng and Guangdong Shenglu

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

The idea behind Shanghai Jinfeng Wine and Guangdong Shenglu Telecommunication 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.