Correlation Between Shanghai Rongtai and Beijing Jiaman

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

Diversification Opportunities for Shanghai Rongtai and Beijing Jiaman

0.74

Correlation Coefficient

Shanghai Rongtai  Beijing Jiaman

Poor diversification

The 3 months correlation between Shanghai and Beijing is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Rongtai Health and Beijing Jiaman Dress in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Jiaman Dress 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 Beijing Jiaman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Jiaman Dress has no effect on the direction of Shanghai Rongtai i.e., Shanghai Rongtai and Beijing Jiaman go up and down completely randomly.

Pair Corralation between Shanghai Rongtai and Beijing Jiaman

Assuming the 90 days trading horizon Shanghai Rongtai Health is expected to under-perform the Beijing Jiaman. In addition to that, Shanghai Rongtai is 1.07 times more volatile than Beijing Jiaman Dress. It trades about -0.01 of its total potential returns per unit of risk. Beijing Jiaman Dress is currently generating about 0.0 per unit of volatility. If you would invest  2,271  in Beijing Jiaman Dress on September 30, 2024 and sell it today you would lose (186.00) from holding Beijing Jiaman Dress or give up 8.19% of portfolio value over 90 days.

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

Shanghai Rongtai Health  vs.  Beijing Jiaman Dress

Shanghai Rongtai Health

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rongtai Health are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shanghai Rongtai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Beijing Jiaman Dress

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beijing Jiaman Dress has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Beijing Jiaman 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 Rongtai and Beijing Jiaman

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

The idea behind Shanghai Rongtai Health and Beijing Jiaman Dress 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.