Correlation Between Shanghai Putailai and ChengDu Hi

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

By analyzing existing cross correlation between Shanghai Putailai New and ChengDu Hi Tech Development, you can compare the effects of market volatilities on Shanghai Putailai and ChengDu Hi 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 Putailai with a short position of ChengDu Hi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Putailai and ChengDu Hi.

Diversification Opportunities for Shanghai Putailai and ChengDu Hi

0.26

Correlation Coefficient

Shanghai Putailai  ChengDu Hi

Modest diversification

The 3 months correlation between Shanghai and ChengDu is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Putailai New and ChengDu Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChengDu Hi Tech and Shanghai Putailai 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 Putailai New are associated (or correlated) with ChengDu Hi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChengDu Hi Tech has no effect on the direction of Shanghai Putailai i.e., Shanghai Putailai and ChengDu Hi go up and down completely randomly.

Pair Corralation between Shanghai Putailai and ChengDu Hi

Assuming the 90 days trading horizon Shanghai Putailai New is expected to under-perform the ChengDu Hi. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Putailai New is 2.31 times less risky than ChengDu Hi. The stock trades about -0.72 of its potential returns per unit of risk. The ChengDu Hi Tech Development is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  5,949  in ChengDu Hi Tech Development on October 8, 2024 and sell it today you would lose (807.00) from holding ChengDu Hi Tech Development or give up 13.57% of portfolio value over 90 days.

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

Shanghai Putailai New  vs.  ChengDu Hi Tech Development

Shanghai Putailai New

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Putailai New has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Putailai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ChengDu Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ChengDu Hi Tech Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ChengDu Hi 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 Putailai and ChengDu Hi

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

The idea behind Shanghai Putailai New and ChengDu Hi Tech Development 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .