Correlation Between Shanghai Rongtai and Shenzhen MYS

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

By analyzing existing cross correlation between Shanghai Rongtai Health and Shenzhen MYS Environmental, you can compare the effects of market volatilities on Shanghai Rongtai and Shenzhen MYS 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 Rongtai with a short position of Shenzhen MYS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Rongtai and Shenzhen MYS.

Diversification Opportunities for Shanghai Rongtai and Shenzhen MYS

0.22

Correlation Coefficient

Shanghai Rongtai  Shenzhen MYS

Modest diversification

The 3 months correlation between Shanghai and Shenzhen is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Rongtai Health and Shenzhen MYS Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen MYS Environ and Shanghai Rongtai 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 Rongtai Health are associated (or correlated) with Shenzhen MYS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen MYS Environ has no effect on the direction of Shanghai Rongtai i.e., Shanghai Rongtai and Shenzhen MYS go up and down completely randomly.

Pair Corralation between Shanghai Rongtai and Shenzhen MYS

Assuming the 90 days trading horizon Shanghai Rongtai Health is expected to generate 1.08 times more return on investment than Shenzhen MYS. However, Shanghai Rongtai is 1.08 times more volatile than Shenzhen MYS Environmental. It trades about 0.06 of its potential returns per unit of risk. Shenzhen MYS Environmental is currently generating about -0.1 per unit of risk. If you would invest  1,534  in Shanghai Rongtai Health on December 2, 2024 and sell it today you would earn a total of  117.00  from holding Shanghai Rongtai Health or generate 7.63% return on investment over 90 days.

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

Shanghai Rongtai Health  vs.  Shenzhen MYS Environmental

Shanghai Rongtai Health

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rongtai Health are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Rongtai may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Shenzhen MYS Environ

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shenzhen MYS Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shanghai Rongtai and Shenzhen MYS

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

The idea behind Shanghai Rongtai Health and Shenzhen MYS Environmental 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.