Correlation Between Shanghai Ziyan and Eastern Air

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

Diversification Opportunities for Shanghai Ziyan and Eastern Air

0.18

Correlation Coefficient

Shanghai Ziyan  Eastern Air

Average diversification

The 3 months correlation between Shanghai and Eastern is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Ziyan Foods and Eastern Air Logistics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Air Logistics 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 Eastern Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Air Logistics has no effect on the direction of Shanghai Ziyan i.e., Shanghai Ziyan and Eastern Air go up and down completely randomly.

Pair Corralation between Shanghai Ziyan and Eastern Air

Assuming the 90 days trading horizon Shanghai Ziyan Foods is expected to under-perform the Eastern Air. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Ziyan Foods is 1.01 times less risky than Eastern Air. The stock trades about -0.02 of its potential returns per unit of risk. The Eastern Air Logistics is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,435  in Eastern Air Logistics on September 29, 2024 and sell it today you would earn a total of  282.00  from holding Eastern Air Logistics or generate 19.65% return on investment over 90 days.

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

Shanghai Ziyan Foods  vs.  Eastern Air Logistics

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.

Eastern Air Logistics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Air Logistics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Eastern Air 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 Eastern Air

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

The idea behind Shanghai Ziyan Foods and Eastern Air Logistics 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.