Correlation Between Wuhan Xianglong and Shanghai Ziyan

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

By analyzing existing cross correlation between Wuhan Xianglong Power and Shanghai Ziyan Foods, you can compare the effects of market volatilities on Wuhan Xianglong and Shanghai Ziyan 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 Wuhan Xianglong with a short position of Shanghai Ziyan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wuhan Xianglong and Shanghai Ziyan.

Diversification Opportunities for Wuhan Xianglong and Shanghai Ziyan

0.77

Correlation Coefficient

Wuhan Xianglong  Shanghai Ziyan

Poor diversification

The 3 months correlation between Wuhan and Shanghai is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Wuhan Xianglong Power and Shanghai Ziyan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Ziyan Foods and Wuhan Xianglong 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 Wuhan Xianglong Power are associated (or correlated) with Shanghai Ziyan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Ziyan Foods has no effect on the direction of Wuhan Xianglong i.e., Wuhan Xianglong and Shanghai Ziyan go up and down completely randomly.

Pair Corralation between Wuhan Xianglong and Shanghai Ziyan

Assuming the 90 days trading horizon Wuhan Xianglong Power is expected to generate 1.7 times more return on investment than Shanghai Ziyan. However, Wuhan Xianglong is 1.7 times more volatile than Shanghai Ziyan Foods. It trades about 0.26 of its potential returns per unit of risk. Shanghai Ziyan Foods is currently generating about 0.11 per unit of risk. If you would invest  625.00  in Wuhan Xianglong Power on August 31, 2024 and sell it today you would earn a total of  574.00  from holding Wuhan Xianglong Power or generate 91.84% return on investment over 90 days.

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

Wuhan Xianglong Power  vs.  Shanghai Ziyan Foods

Wuhan Xianglong Power

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wuhan Xianglong Power are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuhan Xianglong sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Ziyan Foods

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Ziyan Foods are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Ziyan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wuhan Xianglong and Shanghai Ziyan

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

The idea behind Wuhan Xianglong Power and Shanghai Ziyan Foods 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.