Correlation Between Shanghai Putailai and Shijiazhuang Tonhe

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

Diversification Opportunities for Shanghai Putailai and Shijiazhuang Tonhe

0.4

Correlation Coefficient

Shanghai Putailai  Shijiazhuang Tonhe

Very weak diversification

The 3 months correlation between Shanghai and Shijiazhuang is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Putailai New and Shijiazhuang Tonhe Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shijiazhuang Tonhe 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 Shijiazhuang Tonhe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shijiazhuang Tonhe has no effect on the direction of Shanghai Putailai i.e., Shanghai Putailai and Shijiazhuang Tonhe go up and down completely randomly.

Pair Corralation between Shanghai Putailai and Shijiazhuang Tonhe

Assuming the 90 days trading horizon Shanghai Putailai New is expected to under-perform the Shijiazhuang Tonhe. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Putailai New is 2.93 times less risky than Shijiazhuang Tonhe. The stock trades about -0.5 of its potential returns per unit of risk. The Shijiazhuang Tonhe Electronics is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  1,710  in Shijiazhuang Tonhe Electronics on October 13, 2024 and sell it today you would lose (215.00) from holding Shijiazhuang Tonhe Electronics or give up 12.57% of portfolio value over 90 days.

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

Shanghai Putailai New  vs.  Shijiazhuang Tonhe Electronics

Shanghai Putailai New

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Putailai New are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Putailai may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Shijiazhuang Tonhe

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Shanghai Putailai New and Shijiazhuang Tonhe Electronics 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.