Correlation Between Shanghai Ziyan and Liaoning Dingjide

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

Diversification Opportunities for Shanghai Ziyan and Liaoning Dingjide

0.76

Correlation Coefficient

Shanghai Ziyan  Liaoning Dingjide

Poor diversification

The 3 months correlation between Shanghai and Liaoning is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Ziyan Foods and Liaoning Dingjide Petrochemica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Dingjide 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 Liaoning Dingjide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Dingjide has no effect on the direction of Shanghai Ziyan i.e., Shanghai Ziyan and Liaoning Dingjide go up and down completely randomly.

Pair Corralation between Shanghai Ziyan and Liaoning Dingjide

Assuming the 90 days trading horizon Shanghai Ziyan is expected to generate 1.35 times less return on investment than Liaoning Dingjide. In addition to that, Shanghai Ziyan is 1.06 times more volatile than Liaoning Dingjide Petrochemical. It trades about 0.08 of its total potential returns per unit of risk. Liaoning Dingjide Petrochemical is currently generating about 0.11 per unit of volatility. If you would invest  2,311  in Liaoning Dingjide Petrochemical on September 29, 2024 and sell it today you would earn a total of  911.00  from holding Liaoning Dingjide Petrochemical or generate 39.42% return on investment over 90 days.

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

Shanghai Ziyan Foods  vs.  Liaoning Dingjide Petrochemica

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.

Liaoning Dingjide

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Shanghai Ziyan and Liaoning Dingjide

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

The idea behind Shanghai Ziyan Foods and Liaoning Dingjide Petrochemical 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.