Correlation Between Zhongtong Guomai and Shanghai Pharmaceuticals

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

By analyzing existing cross correlation between Zhongtong Guomai Communication and Shanghai Pharmaceuticals Holding, you can compare the effects of market volatilities on Zhongtong Guomai and Shanghai Pharmaceuticals 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 Zhongtong Guomai with a short position of Shanghai Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongtong Guomai and Shanghai Pharmaceuticals.

Diversification Opportunities for Zhongtong Guomai and Shanghai Pharmaceuticals

0.62

Correlation Coefficient

Zhongtong Guomai  Shanghai Pharmaceuticals

Poor diversification

The 3 months correlation between Zhongtong and Shanghai is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Zhongtong Guomai Communication and Shanghai Pharmaceuticals Holdi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Pharmaceuticals and Zhongtong Guomai 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 Zhongtong Guomai Communication are associated (or correlated) with Shanghai Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Pharmaceuticals has no effect on the direction of Zhongtong Guomai i.e., Zhongtong Guomai and Shanghai Pharmaceuticals go up and down completely randomly.

Pair Corralation between Zhongtong Guomai and Shanghai Pharmaceuticals

Assuming the 90 days trading horizon Zhongtong Guomai Communication is expected to generate 3.24 times more return on investment than Shanghai Pharmaceuticals. However, Zhongtong Guomai is 3.24 times more volatile than Shanghai Pharmaceuticals Holding. It trades about 0.0 of its potential returns per unit of risk. Shanghai Pharmaceuticals Holding is currently generating about -0.15 per unit of risk. If you would invest  824.00  in Zhongtong Guomai Communication on December 27, 2024 and sell it today you would lose (18.00) from holding Zhongtong Guomai Communication or give up 2.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

Zhongtong Guomai Communication  vs.  Shanghai Pharmaceuticals Holdi

Zhongtong Guomai Com

Risk-Adjusted Performance

Very Weak

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

Shanghai Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Pharmaceuticals Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Zhongtong Guomai and Shanghai Pharmaceuticals

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

The idea behind Zhongtong Guomai Communication and Shanghai Pharmaceuticals Holding 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.