Correlation Between Shanghai Rongtai and GigaDevice SemiconductorBei

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

Diversification Opportunities for Shanghai Rongtai and GigaDevice SemiconductorBei

0.74

Correlation Coefficient

Shanghai Rongtai  GigaDevice SemiconductorBei

Poor diversification

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

Pair Corralation between Shanghai Rongtai and GigaDevice SemiconductorBei

Assuming the 90 days trading horizon Shanghai Rongtai is expected to generate 4.14 times less return on investment than GigaDevice SemiconductorBei. But when comparing it to its historical volatility, Shanghai Rongtai Health is 1.5 times less risky than GigaDevice SemiconductorBei. It trades about 0.11 of its potential returns per unit of risk. GigaDevice SemiconductorBeiji is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  8,831  in GigaDevice SemiconductorBeiji on September 21, 2024 and sell it today you would earn a total of  2,489  from holding GigaDevice SemiconductorBeiji or generate 28.18% return on investment over 90 days.

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

Shanghai Rongtai Health  vs.  GigaDevice SemiconductorBeiji

Shanghai Rongtai Health

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rongtai Health are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Rongtai sustained solid returns over the last few months and may actually be approaching a breakup point.

GigaDevice SemiconductorBei

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GigaDevice SemiconductorBeiji are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, GigaDevice SemiconductorBei sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Rongtai and GigaDevice SemiconductorBei

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

The idea behind Shanghai Rongtai Health and GigaDevice SemiconductorBeiji 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.