Correlation Between Shanghai Ziyan and Xinjiang Communications

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

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

Diversification Opportunities for Shanghai Ziyan and Xinjiang Communications

0.29

Correlation Coefficient

Shanghai Ziyan  Xinjiang Communications

Modest diversification

The 3 months correlation between Shanghai and Xinjiang is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Ziyan Foods and Xinjiang Communications Constr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinjiang Communications and Shanghai Ziyan 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 Ziyan Foods are associated (or correlated) with Xinjiang Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinjiang Communications has no effect on the direction of Shanghai Ziyan i.e., Shanghai Ziyan and Xinjiang Communications go up and down completely randomly.

Pair Corralation between Shanghai Ziyan and Xinjiang Communications

Assuming the 90 days trading horizon Shanghai Ziyan Foods is expected to under-perform the Xinjiang Communications. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Ziyan Foods is 1.29 times less risky than Xinjiang Communications. The stock trades about -0.03 of its potential returns per unit of risk. The Xinjiang Communications Construction is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,316  in Xinjiang Communications Construction on October 25, 2024 and sell it today you would lose (267.00) from holding Xinjiang Communications Construction or give up 20.29% of portfolio value over 90 days.

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

Shanghai Ziyan Foods  vs.  Xinjiang Communications Constr

Shanghai Ziyan Foods

Risk-Adjusted Performance

1 of 100

Weak

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

Xinjiang Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shanghai Ziyan and Xinjiang Communications

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

The idea behind Shanghai Ziyan Foods and Xinjiang Communications Construction 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.