Correlation Between China Publishing and Shandong Homey

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

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

Diversification Opportunities for China Publishing and Shandong Homey

0.83

Correlation Coefficient

China Publishing  Shandong Homey

Very poor diversification

The 3 months correlation between China and Shandong is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding China Publishing Media 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 China 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 China Publishing Media 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 China Publishing i.e., China Publishing and Shandong Homey go up and down completely randomly.

Pair Corralation between China Publishing and Shandong Homey

Assuming the 90 days trading horizon China Publishing Media is expected to under-perform the Shandong Homey. But the stock apears to be less risky and, when comparing its historical volatility, China Publishing Media is 1.45 times less risky than Shandong Homey. The stock trades about -0.17 of its potential returns per unit of risk. The Shandong Homey Aquatic is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  225.00  in Shandong Homey Aquatic on September 23, 2024 and sell it today you would earn a total of  31.00  from holding Shandong Homey Aquatic or generate 13.78% return on investment over 90 days.

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

China Publishing Media  vs.  Shandong Homey Aquatic

China Publishing Media

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Publishing Media are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Publishing sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Homey Aquatic

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Homey Aquatic are ranked lower than 15 (%) 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 China Publishing and Shandong Homey

The main advantage of trading using opposite China Publishing and Shandong Homey positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Publishing 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 China Publishing Media 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.