Correlation Between Shanghai Shuixing and Guangdong Shenglu

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

Diversification Opportunities for Shanghai Shuixing and Guangdong Shenglu

0.31

Correlation Coefficient

Shanghai Shuixing  Guangdong Shenglu

Weak diversification

The 3 months correlation between Shanghai and Guangdong is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Shuixing Home and Guangdong Shenglu Telecommunic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Shenglu 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 Guangdong Shenglu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Shenglu has no effect on the direction of Shanghai Shuixing i.e., Shanghai Shuixing and Guangdong Shenglu go up and down completely randomly.

Pair Corralation between Shanghai Shuixing and Guangdong Shenglu

Assuming the 90 days trading horizon Shanghai Shuixing Home is expected to under-perform the Guangdong Shenglu. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Shuixing Home is 1.25 times less risky than Guangdong Shenglu. The stock trades about -0.03 of its potential returns per unit of risk. The Guangdong Shenglu Telecommunication is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  685.00  in Guangdong Shenglu Telecommunication on December 26, 2024 and sell it today you would lose (27.00) from holding Guangdong Shenglu Telecommunication or give up 3.94% of portfolio value over 90 days.

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

Shanghai Shuixing Home  vs.  Guangdong Shenglu Telecommunic

Shanghai Shuixing Home

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Shuixing Home has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Shuixing is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Guangdong Shenglu

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangdong Shenglu Telecommunication has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangdong Shenglu is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shanghai Shuixing and Guangdong Shenglu

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

The idea behind Shanghai Shuixing Home and Guangdong Shenglu Telecommunication 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.