Correlation Between Shanghai Shuixing and China Securities

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

By analyzing existing cross correlation between Shanghai Shuixing Home and China Securities 800, you can compare the effects of market volatilities on Shanghai Shuixing and China Securities 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 Shuixing with a short position of China Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Shuixing and China Securities.

Diversification Opportunities for Shanghai Shuixing and China Securities

0.72

Correlation Coefficient

Shanghai Shuixing  China Securities

Poor diversification

The 3 months correlation between Shanghai and China is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Shuixing Home and China Securities 800 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Securities 800 and Shanghai Shuixing 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 Shuixing Home are associated (or correlated) with China Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Securities 800 has no effect on the direction of Shanghai Shuixing i.e., Shanghai Shuixing and China Securities go up and down completely randomly.

Pair Corralation between Shanghai Shuixing and China Securities

Assuming the 90 days trading horizon Shanghai Shuixing Home is expected to generate 1.58 times more return on investment than China Securities. However, Shanghai Shuixing is 1.58 times more volatile than China Securities 800. It trades about 0.17 of its potential returns per unit of risk. China Securities 800 is currently generating about 0.17 per unit of risk. If you would invest  1,135  in Shanghai Shuixing Home on September 19, 2024 and sell it today you would earn a total of  457.00  from holding Shanghai Shuixing Home or generate 40.26% return on investment over 90 days.

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

Shanghai Shuixing Home  vs.  China Securities 800

Pair Trading with Shanghai Shuixing and China Securities

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

The idea behind Shanghai Shuixing Home and China Securities 800 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.