Correlation Between Shanghai Jinfeng and Liaoning Chengda

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

Diversification Opportunities for Shanghai Jinfeng and Liaoning Chengda

0.87

Correlation Coefficient

Shanghai Jinfeng  Liaoning Chengda

Very poor diversification

The 3 months correlation between Shanghai and Liaoning is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Jinfeng Wine and Liaoning Chengda Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Chengda Bio 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 Liaoning Chengda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Chengda Bio has no effect on the direction of Shanghai Jinfeng i.e., Shanghai Jinfeng and Liaoning Chengda go up and down completely randomly.

Pair Corralation between Shanghai Jinfeng and Liaoning Chengda

Assuming the 90 days trading horizon Shanghai Jinfeng Wine is expected to generate 1.0 times more return on investment than Liaoning Chengda. However, Shanghai Jinfeng Wine is 1.0 times less risky than Liaoning Chengda. It trades about 0.21 of its potential returns per unit of risk. Liaoning Chengda Biotechnology is currently generating about 0.12 per unit of risk. If you would invest  437.00  in Shanghai Jinfeng Wine on September 4, 2024 and sell it today you would earn a total of  168.00  from holding Shanghai Jinfeng Wine or generate 38.44% return on investment over 90 days.

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

Shanghai Jinfeng Wine  vs.  Liaoning Chengda Biotechnology

Shanghai Jinfeng Wine

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Jinfeng Wine are ranked lower than 16 (%) 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.

Liaoning Chengda Bio

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Chengda Biotechnology are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liaoning Chengda sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Jinfeng and Liaoning Chengda

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

The idea behind Shanghai Jinfeng Wine and Liaoning Chengda Biotechnology 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.