Correlation Between Shanghai Action and Beijing Ultrapower

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

Diversification Opportunities for Shanghai Action and Beijing Ultrapower

0.42

Correlation Coefficient

Shanghai Action  Beijing Ultrapower

Very weak diversification

The 3 months correlation between Shanghai and Beijing is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Action Education and Beijing Ultrapower Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Ultrapower 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 Beijing Ultrapower. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Ultrapower has no effect on the direction of Shanghai Action i.e., Shanghai Action and Beijing Ultrapower go up and down completely randomly.

Pair Corralation between Shanghai Action and Beijing Ultrapower

Assuming the 90 days trading horizon Shanghai Action Education is expected to under-perform the Beijing Ultrapower. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Action Education is 1.64 times less risky than Beijing Ultrapower. The stock trades about -0.09 of its potential returns per unit of risk. The Beijing Ultrapower Software is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,247  in Beijing Ultrapower Software on September 30, 2024 and sell it today you would lose (45.00) from holding Beijing Ultrapower Software or give up 3.61% of portfolio value over 90 days.

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

Shanghai Action Education  vs.  Beijing Ultrapower Software

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Beijing Ultrapower

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Shanghai Action Education and Beijing Ultrapower Software 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.