Correlation Between Shanghai Rural and Shandong Homey

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

By analyzing existing cross correlation between Shanghai Rural Commercial and Shandong Homey Aquatic, you can compare the effects of market volatilities on Shanghai Rural and Shandong Homey 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 Rural with a short position of Shandong Homey. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Rural and Shandong Homey.

Diversification Opportunities for Shanghai Rural and Shandong Homey

0.13

Correlation Coefficient

Shanghai Rural  Shandong Homey

Average diversification

The 3 months correlation between Shanghai and Shandong is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Rural Commercial and Shandong Homey Aquatic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Homey Aquatic and Shanghai Rural 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 Rural Commercial are associated (or correlated) with Shandong Homey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Homey Aquatic has no effect on the direction of Shanghai Rural i.e., Shanghai Rural and Shandong Homey go up and down completely randomly.

Pair Corralation between Shanghai Rural and Shandong Homey

Assuming the 90 days trading horizon Shanghai Rural Commercial is expected to generate 0.43 times more return on investment than Shandong Homey. However, Shanghai Rural Commercial is 2.3 times less risky than Shandong Homey. It trades about -0.1 of its potential returns per unit of risk. Shandong Homey Aquatic is currently generating about -0.11 per unit of risk. If you would invest  830.00  in Shanghai Rural Commercial on October 24, 2024 and sell it today you would lose (23.00) from holding Shanghai Rural Commercial or give up 2.77% of portfolio value over 90 days.

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

Shanghai Rural Commercial  vs.  Shandong Homey Aquatic

Shanghai Rural Commercial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rural Commercial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shanghai Rural is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shandong Homey Aquatic

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Homey Aquatic are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Homey sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Rural and Shandong Homey

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

The idea behind Shanghai Rural Commercial and Shandong Homey Aquatic 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.