Correlation Between Shanghai Material and Tieling Newcity

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

Diversification Opportunities for Shanghai Material and Tieling Newcity

0.3

Correlation Coefficient

Shanghai Material  Tieling Newcity

Weak diversification

The 3 months correlation between Shanghai and Tieling is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Material Trading and Tieling Newcity Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tieling Newcity Inve 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 Tieling Newcity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tieling Newcity Inve has no effect on the direction of Shanghai Material i.e., Shanghai Material and Tieling Newcity go up and down completely randomly.

Pair Corralation between Shanghai Material and Tieling Newcity

Assuming the 90 days trading horizon Shanghai Material Trading is expected to under-perform the Tieling Newcity. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Material Trading is 1.44 times less risky than Tieling Newcity. The stock trades about -0.05 of its potential returns per unit of risk. The Tieling Newcity Investment is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  291.00  in Tieling Newcity Investment on December 25, 2024 and sell it today you would earn a total of  39.00  from holding Tieling Newcity Investment or generate 13.4% return on investment over 90 days.

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

Shanghai Material Trading  vs.  Tieling Newcity Investment

Shanghai Material Trading

Risk-Adjusted Performance

Very Weak

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

Tieling Newcity Inve

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tieling Newcity Investment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tieling Newcity sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Material and Tieling Newcity

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

The idea behind Shanghai Material Trading and Tieling Newcity Investment 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.