Correlation Between Shanghai Pharmaceuticals and Cofco Biochemical

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

By analyzing existing cross correlation between Shanghai Pharmaceuticals Holding and Cofco Biochemical Anhui, you can compare the effects of market volatilities on Shanghai Pharmaceuticals and Cofco Biochemical 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 Pharmaceuticals with a short position of Cofco Biochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Pharmaceuticals and Cofco Biochemical.

Diversification Opportunities for Shanghai Pharmaceuticals and Cofco Biochemical

0.21

Correlation Coefficient

Shanghai Pharmaceuticals  Cofco Biochemical

Modest diversification

The 3 months correlation between Shanghai and Cofco is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Pharmaceuticals Holdi and Cofco Biochemical Anhui in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cofco Biochemical Anhui and Shanghai Pharmaceuticals 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 Pharmaceuticals Holding are associated (or correlated) with Cofco Biochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cofco Biochemical Anhui has no effect on the direction of Shanghai Pharmaceuticals i.e., Shanghai Pharmaceuticals and Cofco Biochemical go up and down completely randomly.

Pair Corralation between Shanghai Pharmaceuticals and Cofco Biochemical

Assuming the 90 days trading horizon Shanghai Pharmaceuticals Holding is expected to generate 0.69 times more return on investment than Cofco Biochemical. However, Shanghai Pharmaceuticals Holding is 1.45 times less risky than Cofco Biochemical. It trades about -0.05 of its potential returns per unit of risk. Cofco Biochemical Anhui is currently generating about -0.08 per unit of risk. If you would invest  2,190  in Shanghai Pharmaceuticals Holding on October 7, 2024 and sell it today you would lose (142.00) from holding Shanghai Pharmaceuticals Holding or give up 6.48% of portfolio value over 90 days.

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

Shanghai Pharmaceuticals Holdi  vs.  Cofco Biochemical Anhui

Shanghai Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Cofco Biochemical Anhui

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cofco Biochemical Anhui 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 Shanghai Pharmaceuticals and Cofco Biochemical

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

The idea behind Shanghai Pharmaceuticals Holding and Cofco Biochemical Anhui 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.