Correlation Between Shanghai Ziyan and Nantong Haixing

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

Diversification Opportunities for Shanghai Ziyan and Nantong Haixing

0.63

Correlation Coefficient

Shanghai Ziyan  Nantong Haixing

Poor diversification

The 3 months correlation between Shanghai and Nantong is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Ziyan Foods and Nantong Haixing Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nantong Haixing Elec 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 Nantong Haixing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nantong Haixing Elec has no effect on the direction of Shanghai Ziyan i.e., Shanghai Ziyan and Nantong Haixing go up and down completely randomly.

Pair Corralation between Shanghai Ziyan and Nantong Haixing

Assuming the 90 days trading horizon Shanghai Ziyan Foods is expected to generate 2.0 times more return on investment than Nantong Haixing. However, Shanghai Ziyan is 2.0 times more volatile than Nantong Haixing Electronics. It trades about 0.0 of its potential returns per unit of risk. Nantong Haixing Electronics is currently generating about -0.12 per unit of risk. If you would invest  1,903  in Shanghai Ziyan Foods on September 27, 2024 and sell it today you would lose (23.00) from holding Shanghai Ziyan Foods or give up 1.21% of portfolio value over 90 days.

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

Shanghai Ziyan Foods  vs.  Nantong Haixing Electronics

Shanghai Ziyan Foods

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Ziyan Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Ziyan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nantong Haixing Elec

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nantong Haixing Electronics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nantong Haixing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Ziyan and Nantong Haixing

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

The idea behind Shanghai Ziyan Foods and Nantong Haixing Electronics 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.