Correlation Between Shanghai Jinfeng and Anhui Jianghuai

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

Diversification Opportunities for Shanghai Jinfeng and Anhui Jianghuai

0.66

Correlation Coefficient

Shanghai Jinfeng  Anhui Jianghuai

Poor diversification

The 3 months correlation between Shanghai and Anhui is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Jinfeng Wine and Anhui Jianghuai Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Jianghuai Auto 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 Anhui Jianghuai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Jianghuai Auto has no effect on the direction of Shanghai Jinfeng i.e., Shanghai Jinfeng and Anhui Jianghuai go up and down completely randomly.

Pair Corralation between Shanghai Jinfeng and Anhui Jianghuai

Assuming the 90 days trading horizon Shanghai Jinfeng is expected to generate 1.64 times less return on investment than Anhui Jianghuai. But when comparing it to its historical volatility, Shanghai Jinfeng Wine is 1.28 times less risky than Anhui Jianghuai. It trades about 0.17 of its potential returns per unit of risk. Anhui Jianghuai Automobile is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,174  in Anhui Jianghuai Automobile on September 22, 2024 and sell it today you would earn a total of  1,541  from holding Anhui Jianghuai Automobile or generate 70.88% 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.  Anhui Jianghuai Automobile

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.

Anhui Jianghuai Auto

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Jianghuai Automobile are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Jianghuai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Jinfeng and Anhui Jianghuai

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

The idea behind Shanghai Jinfeng Wine and Anhui Jianghuai Automobile 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..