Correlation Between Shanghai Ziyan and Anhui Huaren

Can any of the company-specific risk be diversified away by investing in both Shanghai Ziyan and Anhui Huaren 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 Anhui Huaren 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 Anhui Huaren Health, you can compare the effects of market volatilities on Shanghai Ziyan and Anhui Huaren 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 Anhui Huaren. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Ziyan and Anhui Huaren.

Diversification Opportunities for Shanghai Ziyan and Anhui Huaren

0.31

Correlation Coefficient

Shanghai Ziyan  Anhui Huaren

Weak diversification

The 3 months correlation between Shanghai and Anhui is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Ziyan Foods and Anhui Huaren Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Huaren Health 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 Anhui Huaren. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Huaren Health has no effect on the direction of Shanghai Ziyan i.e., Shanghai Ziyan and Anhui Huaren go up and down completely randomly.

Pair Corralation between Shanghai Ziyan and Anhui Huaren

Assuming the 90 days trading horizon Shanghai Ziyan is expected to generate 1.52 times less return on investment than Anhui Huaren. But when comparing it to its historical volatility, Shanghai Ziyan Foods is 1.06 times less risky than Anhui Huaren. It trades about 0.03 of its potential returns per unit of risk. Anhui Huaren Health is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,141  in Anhui Huaren Health on December 26, 2024 and sell it today you would earn a total of  44.00  from holding Anhui Huaren Health or generate 3.86% return on investment over 90 days.

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

Shanghai Ziyan Foods  vs.  Anhui Huaren Health

Shanghai Ziyan Foods

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Ziyan Foods are ranked lower than 2 (%) 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.

Anhui Huaren Health

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Huaren Health are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Huaren may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Shanghai Ziyan and Anhui Huaren

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

The idea behind Shanghai Ziyan Foods and Anhui Huaren Health 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.