Correlation Between Shanghai Rongtai and Humanwell Healthcare

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

Diversification Opportunities for Shanghai Rongtai and Humanwell Healthcare

0.82

Correlation Coefficient

Shanghai Rongtai  Humanwell Healthcare

Very poor diversification

The 3 months correlation between Shanghai and Humanwell is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Rongtai Health and Humanwell Healthcare Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Humanwell Healthcare 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 Humanwell Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Humanwell Healthcare has no effect on the direction of Shanghai Rongtai i.e., Shanghai Rongtai and Humanwell Healthcare go up and down completely randomly.

Pair Corralation between Shanghai Rongtai and Humanwell Healthcare

Assuming the 90 days trading horizon Shanghai Rongtai Health is expected to under-perform the Humanwell Healthcare. In addition to that, Shanghai Rongtai is 1.29 times more volatile than Humanwell Healthcare Group. It trades about -0.12 of its total potential returns per unit of risk. Humanwell Healthcare Group is currently generating about -0.1 per unit of volatility. If you would invest  2,337  in Humanwell Healthcare Group on October 7, 2024 and sell it today you would lose (109.00) from holding Humanwell Healthcare Group or give up 4.66% of portfolio value over 90 days.

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

Shanghai Rongtai Health  vs.  Humanwell Healthcare Group

Shanghai Rongtai Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Rongtai Health 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.

Humanwell Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Humanwell Healthcare Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Humanwell Healthcare 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 Humanwell Healthcare

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

The idea behind Shanghai Rongtai Health and Humanwell Healthcare Group 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.