Correlation Between Shanghai Action and Heilongjiang Transport

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

Diversification Opportunities for Shanghai Action and Heilongjiang Transport

0.36

Correlation Coefficient

Shanghai Action  Heilongjiang Transport

Weak diversification

The 3 months correlation between Shanghai and Heilongjiang is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Action Education and Heilongjiang Transport Develop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heilongjiang Transport 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 Heilongjiang Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heilongjiang Transport has no effect on the direction of Shanghai Action i.e., Shanghai Action and Heilongjiang Transport go up and down completely randomly.

Pair Corralation between Shanghai Action and Heilongjiang Transport

Assuming the 90 days trading horizon Shanghai Action Education is expected to generate 0.9 times more return on investment than Heilongjiang Transport. However, Shanghai Action Education is 1.11 times less risky than Heilongjiang Transport. It trades about 0.04 of its potential returns per unit of risk. Heilongjiang Transport Development is currently generating about 0.03 per unit of risk. If you would invest  2,524  in Shanghai Action Education on September 22, 2024 and sell it today you would earn a total of  959.00  from holding Shanghai Action Education or generate 38.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Shanghai Action Education  vs.  Heilongjiang Transport Develop

Shanghai Action Education

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Action Education are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Action sustained solid returns over the last few months and may actually be approaching a breakup point.

Heilongjiang Transport

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heilongjiang Transport Development are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Heilongjiang Transport sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Action and Heilongjiang Transport

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

The idea behind Shanghai Action Education and Heilongjiang Transport 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.