Correlation Between Shanghai Material and Chongqing Rural

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

Diversification Opportunities for Shanghai Material and Chongqing Rural

-0.13

Correlation Coefficient

Shanghai Material  Chongqing Rural

Good diversification

The 3 months correlation between Shanghai and Chongqing is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Material Trading and Chongqing Rural Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Rural Comm 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 Chongqing Rural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Rural Comm has no effect on the direction of Shanghai Material i.e., Shanghai Material and Chongqing Rural go up and down completely randomly.

Pair Corralation between Shanghai Material and Chongqing Rural

Assuming the 90 days trading horizon Shanghai Material Trading is expected to under-perform the Chongqing Rural. In addition to that, Shanghai Material is 2.85 times more volatile than Chongqing Rural Commercial. It trades about -0.16 of its total potential returns per unit of risk. Chongqing Rural Commercial is currently generating about 0.03 per unit of volatility. If you would invest  574.00  in Chongqing Rural Commercial on October 6, 2024 and sell it today you would earn a total of  4.00  from holding Chongqing Rural Commercial or generate 0.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Shanghai Material Trading  vs.  Chongqing Rural Commercial

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.

Chongqing Rural Comm

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Rural Commercial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Rural may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shanghai Material and Chongqing Rural

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

The idea behind Shanghai Material Trading and Chongqing Rural Commercial 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 Global Correlations module to find global opportunities by holding instruments from different markets.