Correlation Between Shanghai Shuixing and China Galaxy

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

Diversification Opportunities for Shanghai Shuixing and China Galaxy

0.64

Correlation Coefficient

Shanghai Shuixing  China Galaxy

Poor diversification

The 3 months correlation between Shanghai and China is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Shuixing Home and China Galaxy Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Galaxy Securities 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 Galaxy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Galaxy Securities has no effect on the direction of Shanghai Shuixing i.e., Shanghai Shuixing and China Galaxy go up and down completely randomly.

Pair Corralation between Shanghai Shuixing and China Galaxy

Assuming the 90 days trading horizon Shanghai Shuixing is expected to generate 13.34 times less return on investment than China Galaxy. In addition to that, Shanghai Shuixing is 2.24 times more volatile than China Galaxy Securities. It trades about 0.01 of its total potential returns per unit of risk. China Galaxy Securities is currently generating about 0.18 per unit of volatility. If you would invest  1,490  in China Galaxy Securities on September 27, 2024 and sell it today you would earn a total of  90.00  from holding China Galaxy Securities or generate 6.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Shanghai Shuixing Home  vs.  China Galaxy Securities

Shanghai Shuixing Home

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Shuixing Home are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Shuixing sustained solid returns over the last few months and may actually be approaching a breakup point.

China Galaxy Securities

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Shanghai Shuixing and China Galaxy

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

The idea behind Shanghai Shuixing Home and China Galaxy Securities 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.