Correlation Between Shanghai Putailai and Ningbo Bird

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

Diversification Opportunities for Shanghai Putailai and Ningbo Bird

0.8

Correlation Coefficient

Shanghai Putailai  Ningbo Bird

Very poor diversification

The 3 months correlation between Shanghai and Ningbo is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Putailai New and Ningbo Bird Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Bird 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 Ningbo Bird. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Bird has no effect on the direction of Shanghai Putailai i.e., Shanghai Putailai and Ningbo Bird go up and down completely randomly.

Pair Corralation between Shanghai Putailai and Ningbo Bird

Assuming the 90 days trading horizon Shanghai Putailai is expected to generate 6.88 times less return on investment than Ningbo Bird. But when comparing it to its historical volatility, Shanghai Putailai New is 1.17 times less risky than Ningbo Bird. It trades about 0.01 of its potential returns per unit of risk. Ningbo Bird Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  454.00  in Ningbo Bird Co on October 3, 2024 and sell it today you would earn a total of  18.00  from holding Ningbo Bird Co or generate 3.96% return on investment over 90 days.

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

Shanghai Putailai New  vs.  Ningbo Bird Co

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.

Ningbo Bird

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Bird Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Bird may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shanghai Putailai and Ningbo Bird

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

The idea behind Shanghai Putailai New and Ningbo Bird Co 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.