Correlation Between Sanan Optoelectronics and Shandong Sanyuan

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

By analyzing existing cross correlation between Sanan Optoelectronics Co and Shandong Sanyuan Biotechnology, you can compare the effects of market volatilities on Sanan Optoelectronics and Shandong Sanyuan 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 Sanan Optoelectronics with a short position of Shandong Sanyuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sanan Optoelectronics and Shandong Sanyuan.

Diversification Opportunities for Sanan Optoelectronics and Shandong Sanyuan

0.9

Correlation Coefficient

Sanan Optoelectronics  Shandong Sanyuan

Almost no diversification

The 3 months correlation between Sanan and Shandong is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Sanan Optoelectronics Co and Shandong Sanyuan Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Sanyuan Bio and Sanan Optoelectronics 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 Sanan Optoelectronics Co are associated (or correlated) with Shandong Sanyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Sanyuan Bio has no effect on the direction of Sanan Optoelectronics i.e., Sanan Optoelectronics and Shandong Sanyuan go up and down completely randomly.

Pair Corralation between Sanan Optoelectronics and Shandong Sanyuan

Assuming the 90 days trading horizon Sanan Optoelectronics Co is expected to generate 1.04 times more return on investment than Shandong Sanyuan. However, Sanan Optoelectronics is 1.04 times more volatile than Shandong Sanyuan Biotechnology. It trades about 0.18 of its potential returns per unit of risk. Shandong Sanyuan Biotechnology is currently generating about 0.15 per unit of risk. If you would invest  954.00  in Sanan Optoelectronics Co on September 15, 2024 and sell it today you would earn a total of  327.00  from holding Sanan Optoelectronics Co or generate 34.28% return on investment over 90 days.

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

Sanan Optoelectronics Co  vs.  Shandong Sanyuan Biotechnology

Sanan Optoelectronics

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sanan Optoelectronics Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sanan Optoelectronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Sanyuan Bio

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Sanyuan Biotechnology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Sanyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sanan Optoelectronics and Shandong Sanyuan

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

The idea behind Sanan Optoelectronics Co and Shandong Sanyuan 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.