Correlation Between Shanghai Action and Midea Group

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

By analyzing existing cross correlation between Shanghai Action Education and Midea Group Co, you can compare the effects of market volatilities on Shanghai Action and Midea Group 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 Action with a short position of Midea Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Action and Midea Group.

Diversification Opportunities for Shanghai Action and Midea Group

0.68

Correlation Coefficient

Shanghai Action  Midea Group

Poor diversification

The 3 months correlation between Shanghai and Midea is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Action Education and Midea Group Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midea Group and Shanghai Action 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 Action Education are associated (or correlated) with Midea Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midea Group has no effect on the direction of Shanghai Action i.e., Shanghai Action and Midea Group go up and down completely randomly.

Pair Corralation between Shanghai Action and Midea Group

Assuming the 90 days trading horizon Shanghai Action Education is expected to under-perform the Midea Group. In addition to that, Shanghai Action is 1.63 times more volatile than Midea Group Co. It trades about -0.04 of its total potential returns per unit of risk. Midea Group Co is currently generating about 0.04 per unit of volatility. If you would invest  7,300  in Midea Group Co on September 27, 2024 and sell it today you would earn a total of  254.00  from holding Midea Group Co or generate 3.48% return on investment over 90 days.

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

Shanghai Action Education  vs.  Midea Group Co

Shanghai Action Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Action Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Midea Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Midea Group Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Midea Group 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 Action and Midea Group

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

The idea behind Shanghai Action Education and Midea Group 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.

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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.