Correlation Between Sichuan Hebang and Shanghai Yaoji

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

By analyzing existing cross correlation between Sichuan Hebang Biotechnology and Shanghai Yaoji Playing, you can compare the effects of market volatilities on Sichuan Hebang and Shanghai Yaoji 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 Sichuan Hebang with a short position of Shanghai Yaoji. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Hebang and Shanghai Yaoji.

Diversification Opportunities for Sichuan Hebang and Shanghai Yaoji

0.68

Correlation Coefficient

Sichuan Hebang  Shanghai Yaoji

Poor diversification

The 3 months correlation between Sichuan and Shanghai is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Hebang Biotechnology and Shanghai Yaoji Playing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Yaoji Playing and Sichuan Hebang 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 Sichuan Hebang Biotechnology are associated (or correlated) with Shanghai Yaoji. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Yaoji Playing has no effect on the direction of Sichuan Hebang i.e., Sichuan Hebang and Shanghai Yaoji go up and down completely randomly.

Pair Corralation between Sichuan Hebang and Shanghai Yaoji

Assuming the 90 days trading horizon Sichuan Hebang Biotechnology is expected to under-perform the Shanghai Yaoji. But the stock apears to be less risky and, when comparing its historical volatility, Sichuan Hebang Biotechnology is 2.1 times less risky than Shanghai Yaoji. The stock trades about -0.05 of its potential returns per unit of risk. The Shanghai Yaoji Playing is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,803  in Shanghai Yaoji Playing on December 2, 2024 and sell it today you would earn a total of  833.00  from holding Shanghai Yaoji Playing or generate 46.2% return on investment over 90 days.

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

Sichuan Hebang Biotechnology  vs.  Shanghai Yaoji Playing

Sichuan Hebang Biote

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sichuan Hebang Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shanghai Yaoji Playing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Yaoji Playing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sichuan Hebang and Shanghai Yaoji

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

The idea behind Sichuan Hebang Biotechnology and Shanghai Yaoji Playing 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.