Correlation Between Shanghai Rongtai and Anyang Iron

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

Diversification Opportunities for Shanghai Rongtai and Anyang Iron

0.7

Correlation Coefficient

Shanghai Rongtai  Anyang Iron

Poor diversification

The 3 months correlation between Shanghai and Anyang is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Rongtai Health and Anyang Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anyang Iron Steel 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 Anyang Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anyang Iron Steel has no effect on the direction of Shanghai Rongtai i.e., Shanghai Rongtai and Anyang Iron go up and down completely randomly.

Pair Corralation between Shanghai Rongtai and Anyang Iron

Assuming the 90 days trading horizon Shanghai Rongtai Health is expected to under-perform the Anyang Iron. In addition to that, Shanghai Rongtai is 1.0 times more volatile than Anyang Iron Steel. It trades about -0.02 of its total potential returns per unit of risk. Anyang Iron Steel is currently generating about -0.01 per unit of volatility. If you would invest  223.00  in Anyang Iron Steel on October 23, 2024 and sell it today you would lose (43.00) from holding Anyang Iron Steel or give up 19.28% 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.  Anyang Iron Steel

Shanghai Rongtai Health

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rongtai Health are ranked lower than 3 (%) 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.

Anyang Iron Steel

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Anyang Iron Steel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anyang Iron sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Rongtai and Anyang Iron

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

The idea behind Shanghai Rongtai Health and Anyang Iron Steel 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.