Correlation Between Shandong Publishing and Anhui Huaertai

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

By analyzing existing cross correlation between Shandong Publishing Media and Anhui Huaertai Chemical, you can compare the effects of market volatilities on Shandong Publishing and Anhui Huaertai 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 Shandong Publishing with a short position of Anhui Huaertai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Publishing and Anhui Huaertai.

Diversification Opportunities for Shandong Publishing and Anhui Huaertai

-0.5

Correlation Coefficient

Shandong Publishing  Anhui Huaertai

Very good diversification

The 3 months correlation between Shandong and Anhui is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Publishing Media and Anhui Huaertai Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Huaertai Chemical and Shandong Publishing 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 Shandong Publishing Media are associated (or correlated) with Anhui Huaertai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Huaertai Chemical has no effect on the direction of Shandong Publishing i.e., Shandong Publishing and Anhui Huaertai go up and down completely randomly.

Pair Corralation between Shandong Publishing and Anhui Huaertai

Assuming the 90 days trading horizon Shandong Publishing Media is expected to under-perform the Anhui Huaertai. But the stock apears to be less risky and, when comparing its historical volatility, Shandong Publishing Media is 1.13 times less risky than Anhui Huaertai. The stock trades about -0.02 of its potential returns per unit of risk. The Anhui Huaertai Chemical is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  873.00  in Anhui Huaertai Chemical on September 12, 2024 and sell it today you would earn a total of  502.00  from holding Anhui Huaertai Chemical or generate 57.5% return on investment over 90 days.

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

Shandong Publishing Media  vs.  Anhui Huaertai Chemical

Shandong Publishing Media

Risk-Adjusted Performance

0 of 100

Very Weak

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

Anhui Huaertai Chemical

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Huaertai Chemical are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Huaertai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Publishing and Anhui Huaertai

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

The idea behind Shandong Publishing Media and Anhui Huaertai Chemical 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.