Correlation Between Shanghai Material and Harbin Hatou

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

Diversification Opportunities for Shanghai Material and Harbin Hatou

0.47

Correlation Coefficient

Shanghai Material  Harbin Hatou

Very weak diversification

The 3 months correlation between Shanghai and Harbin is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Material Trading and Harbin Hatou Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harbin Hatou Investment 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 Harbin Hatou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harbin Hatou Investment has no effect on the direction of Shanghai Material i.e., Shanghai Material and Harbin Hatou go up and down completely randomly.

Pair Corralation between Shanghai Material and Harbin Hatou

Assuming the 90 days trading horizon Shanghai Material Trading is expected to generate 1.11 times more return on investment than Harbin Hatou. However, Shanghai Material is 1.11 times more volatile than Harbin Hatou Investment. It trades about 0.03 of its potential returns per unit of risk. Harbin Hatou Investment is currently generating about -0.03 per unit of risk. If you would invest  950.00  in Shanghai Material Trading on October 8, 2024 and sell it today you would earn a total of  18.00  from holding Shanghai Material Trading or generate 1.89% return on investment over 90 days.

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

Shanghai Material Trading  vs.  Harbin Hatou Investment

Shanghai Material Trading

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Material Trading are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Material may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Harbin Hatou Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Harbin Hatou Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Shanghai Material and Harbin Hatou

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

The idea behind Shanghai Material Trading and Harbin Hatou 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.