Correlation Between Sichuan Teway and Shanghai Sanyou

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

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

Diversification Opportunities for Sichuan Teway and Shanghai Sanyou

0.89

Correlation Coefficient

Sichuan Teway  Shanghai Sanyou

Very poor diversification

The 3 months correlation between Sichuan and Shanghai is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Teway Food and Shanghai Sanyou Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Sanyou Medical and Sichuan Teway 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 Teway Food are associated (or correlated) with Shanghai Sanyou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Sanyou Medical has no effect on the direction of Sichuan Teway i.e., Sichuan Teway and Shanghai Sanyou go up and down completely randomly.

Pair Corralation between Sichuan Teway and Shanghai Sanyou

Assuming the 90 days trading horizon Sichuan Teway Food is expected to generate 0.76 times more return on investment than Shanghai Sanyou. However, Sichuan Teway Food is 1.31 times less risky than Shanghai Sanyou. It trades about 0.08 of its potential returns per unit of risk. Shanghai Sanyou Medical is currently generating about 0.04 per unit of risk. If you would invest  1,221  in Sichuan Teway Food on September 30, 2024 and sell it today you would earn a total of  133.00  from holding Sichuan Teway Food or generate 10.89% return on investment over 90 days.

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

Sichuan Teway Food  vs.  Shanghai Sanyou Medical

Sichuan Teway Food

Risk-Adjusted Performance

6 of 100

Modest

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

Shanghai Sanyou Medical

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Sichuan Teway and Shanghai Sanyou

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

The idea behind Sichuan Teway Food and Shanghai Sanyou Medical 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.