Correlation Between Shanghai Material and Financial Street

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

By analyzing existing cross correlation between Shanghai Material Trading and Financial Street Holdings, you can compare the effects of market volatilities on Shanghai Material and Financial Street 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 Material with a short position of Financial Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Material and Financial Street.

Diversification Opportunities for Shanghai Material and Financial Street

0.69

Correlation Coefficient

Shanghai Material  Financial Street

Poor diversification

The 3 months correlation between Shanghai and Financial is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Material Trading and Financial Street Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Street Holdings and Shanghai Material 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 Material Trading are associated (or correlated) with Financial Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Street Holdings has no effect on the direction of Shanghai Material i.e., Shanghai Material and Financial Street go up and down completely randomly.

Pair Corralation between Shanghai Material and Financial Street

Assuming the 90 days trading horizon Shanghai Material Trading is expected to generate 1.04 times more return on investment than Financial Street. However, Shanghai Material is 1.04 times more volatile than Financial Street Holdings. It trades about 0.05 of its potential returns per unit of risk. Financial Street Holdings is currently generating about 0.0 per unit of risk. If you would invest  872.00  in Shanghai Material Trading on October 11, 2024 and sell it today you would earn a total of  82.00  from holding Shanghai Material Trading or generate 9.4% return on investment over 90 days.

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

Shanghai Material Trading  vs.  Financial Street Holdings

Shanghai Material Trading

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Material Trading are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Material sustained solid returns over the last few months and may actually be approaching a breakup point.

Financial Street Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shanghai Material and Financial Street

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

The idea behind Shanghai Material Trading and Financial Street Holdings 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.