Correlation Between Shanghai Material and Blue Sail

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

Diversification Opportunities for Shanghai Material and Blue Sail

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between Shanghai and Blue is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Material Trading and Blue Sail Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Sail Medical 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 Blue Sail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Sail Medical has no effect on the direction of Shanghai Material i.e., Shanghai Material and Blue Sail go up and down completely randomly.

Pair Corralation between Shanghai Material and Blue Sail

Assuming the 90 days trading horizon Shanghai Material Trading is expected to generate 2.69 times more return on investment than Blue Sail. However, Shanghai Material is 2.69 times more volatile than Blue Sail Medical. It trades about -0.12 of its potential returns per unit of risk. Blue Sail Medical is currently generating about -0.46 per unit of risk. If you would invest  1,085  in Shanghai Material Trading on October 11, 2024 and sell it today you would lose (128.00) from holding Shanghai Material Trading or give up 11.8% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Shanghai Material Trading  vs.  Blue Sail Medical

 Performance 
       Timeline  
Shanghai Material Trading 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
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.
Blue Sail Medical 

Risk-Adjusted Performance

0 of 100

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

Shanghai Material and Blue Sail Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Shanghai Material and Blue Sail

The main advantage of trading using opposite Shanghai Material and Blue Sail positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Material position performs unexpectedly, Blue Sail 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 Blue Sail will offset losses from the drop in Blue Sail's long position.
The idea behind Shanghai Material Trading and Blue Sail Medical 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.

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