Correlation Between HeBei Jinniu and Shanghai Pharmaceuticals

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

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

Diversification Opportunities for HeBei Jinniu and Shanghai Pharmaceuticals

0.63

Correlation Coefficient

HeBei Jinniu  Shanghai Pharmaceuticals

Poor diversification

The 3 months correlation between HeBei and Shanghai is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding HeBei Jinniu Chemical and Shanghai Pharmaceuticals Holdi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Pharmaceuticals and HeBei Jinniu 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 HeBei Jinniu Chemical are associated (or correlated) with Shanghai Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Pharmaceuticals has no effect on the direction of HeBei Jinniu i.e., HeBei Jinniu and Shanghai Pharmaceuticals go up and down completely randomly.

Pair Corralation between HeBei Jinniu and Shanghai Pharmaceuticals

Assuming the 90 days trading horizon HeBei Jinniu Chemical is expected to under-perform the Shanghai Pharmaceuticals. In addition to that, HeBei Jinniu is 1.98 times more volatile than Shanghai Pharmaceuticals Holding. It trades about -0.43 of its total potential returns per unit of risk. Shanghai Pharmaceuticals Holding is currently generating about -0.23 per unit of volatility. If you would invest  2,173  in Shanghai Pharmaceuticals Holding on October 7, 2024 and sell it today you would lose (125.00) from holding Shanghai Pharmaceuticals Holding or give up 5.75% of portfolio value over 90 days.

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

HeBei Jinniu Chemical  vs.  Shanghai Pharmaceuticals Holdi

HeBei Jinniu Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HeBei Jinniu Chemical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, HeBei Jinniu is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shanghai Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Pharmaceuticals Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Pharmaceuticals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HeBei Jinniu and Shanghai Pharmaceuticals

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

The idea behind HeBei Jinniu Chemical and Shanghai Pharmaceuticals Holding 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.