Correlation Between Eastern Air and Shanghai Sanyou

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

By analyzing existing cross correlation between Eastern Air Logistics and Shanghai Sanyou Medical, you can compare the effects of market volatilities on Eastern Air and Shanghai Sanyou 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 Eastern Air with a short position of Shanghai Sanyou. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern Air and Shanghai Sanyou.

Diversification Opportunities for Eastern Air and Shanghai Sanyou

0.07

Correlation Coefficient

Eastern Air  Shanghai Sanyou

Significant diversification

The 3 months correlation between Eastern and Shanghai is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Air Logistics and Shanghai Sanyou Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Sanyou Medical and Eastern Air 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 Eastern Air Logistics are associated (or correlated) with Shanghai Sanyou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Sanyou Medical has no effect on the direction of Eastern Air i.e., Eastern Air and Shanghai Sanyou go up and down completely randomly.

Pair Corralation between Eastern Air and Shanghai Sanyou

Assuming the 90 days trading horizon Eastern Air Logistics is expected to generate 0.59 times more return on investment than Shanghai Sanyou. However, Eastern Air Logistics is 1.7 times less risky than Shanghai Sanyou. It trades about -0.03 of its potential returns per unit of risk. Shanghai Sanyou Medical is currently generating about -0.05 per unit of risk. If you would invest  1,740  in Eastern Air Logistics on October 8, 2024 and sell it today you would lose (84.00) from holding Eastern Air Logistics or give up 4.83% of portfolio value over 90 days.

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

Eastern Air Logistics  vs.  Shanghai Sanyou Medical

Eastern Air Logistics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Shanghai Sanyou Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Sanyou Medical 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 Eastern Air and Shanghai Sanyou

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

The idea behind Eastern Air Logistics and Shanghai Sanyou Medical 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.