Correlation Between Bank of Nanjing and Shandong Sanyuan

Can any of the company-specific risk be diversified away by investing in both Bank of Nanjing and Shandong Sanyuan 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 Bank of Nanjing and Shandong Sanyuan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bank of Nanjing and Shandong Sanyuan Biotechnology, you can compare the effects of market volatilities on Bank of Nanjing and Shandong Sanyuan 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 Bank of Nanjing with a short position of Shandong Sanyuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Nanjing and Shandong Sanyuan.

Diversification Opportunities for Bank of Nanjing and Shandong Sanyuan

0.39

Correlation Coefficient

Bank of Nanjing  Shandong Sanyuan

Weak diversification

The 3 months correlation between Bank and Shandong is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nanjing and Shandong Sanyuan Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Sanyuan Bio and Bank of Nanjing 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 Bank of Nanjing are associated (or correlated) with Shandong Sanyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Sanyuan Bio has no effect on the direction of Bank of Nanjing i.e., Bank of Nanjing and Shandong Sanyuan go up and down completely randomly.

Pair Corralation between Bank of Nanjing and Shandong Sanyuan

Assuming the 90 days trading horizon Bank of Nanjing is expected to generate 4.78 times less return on investment than Shandong Sanyuan. But when comparing it to its historical volatility, Bank of Nanjing is 1.59 times less risky than Shandong Sanyuan. It trades about 0.03 of its potential returns per unit of risk. Shandong Sanyuan Biotechnology is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,326  in Shandong Sanyuan Biotechnology on September 21, 2024 and sell it today you would earn a total of  392.00  from holding Shandong Sanyuan Biotechnology or generate 16.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Bank of Nanjing  vs.  Shandong Sanyuan Biotechnology

Bank of Nanjing

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Nanjing are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bank of Nanjing is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shandong Sanyuan Bio

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Sanyuan Biotechnology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Sanyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of Nanjing and Shandong Sanyuan

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

The idea behind Bank of Nanjing and Shandong Sanyuan Biotechnology 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.