Correlation Between Xinjiang Baodi and Shanghai Rongtai

Can any of the company-specific risk be diversified away by investing in both Xinjiang Baodi and Shanghai Rongtai 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 Xinjiang Baodi and Shanghai Rongtai into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xinjiang Baodi Mining and Shanghai Rongtai Health, you can compare the effects of market volatilities on Xinjiang Baodi and Shanghai Rongtai 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 Xinjiang Baodi with a short position of Shanghai Rongtai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xinjiang Baodi and Shanghai Rongtai.

Diversification Opportunities for Xinjiang Baodi and Shanghai Rongtai

-0.12

Correlation Coefficient

Xinjiang Baodi  Shanghai Rongtai

Good diversification

The 3 months correlation between Xinjiang and Shanghai is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Xinjiang Baodi Mining and Shanghai Rongtai Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Rongtai Health and Xinjiang Baodi 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 Xinjiang Baodi Mining are associated (or correlated) with Shanghai Rongtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Rongtai Health has no effect on the direction of Xinjiang Baodi i.e., Xinjiang Baodi and Shanghai Rongtai go up and down completely randomly.

Pair Corralation between Xinjiang Baodi and Shanghai Rongtai

Assuming the 90 days trading horizon Xinjiang Baodi Mining is expected to under-perform the Shanghai Rongtai. But the stock apears to be less risky and, when comparing its historical volatility, Xinjiang Baodi Mining is 1.48 times less risky than Shanghai Rongtai. The stock trades about -0.05 of its potential returns per unit of risk. The Shanghai Rongtai Health is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,509  in Shanghai Rongtai Health on December 27, 2024 and sell it today you would earn a total of  533.00  from holding Shanghai Rongtai Health or generate 35.32% return on investment over 90 days.

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

Xinjiang Baodi Mining  vs.  Shanghai Rongtai Health

Xinjiang Baodi Mining

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xinjiang Baodi Mining 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.

Shanghai Rongtai Health

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rongtai Health are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Rongtai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xinjiang Baodi and Shanghai Rongtai

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

The idea behind Xinjiang Baodi Mining and Shanghai Rongtai Health 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.