Correlation Between Shanghai Yanpu and Qingdao Haier

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

By analyzing existing cross correlation between Shanghai Yanpu Metal and Qingdao Haier Biomedical, you can compare the effects of market volatilities on Shanghai Yanpu and Qingdao Haier 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 Yanpu with a short position of Qingdao Haier. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Yanpu and Qingdao Haier.

Diversification Opportunities for Shanghai Yanpu and Qingdao Haier

0.4

Correlation Coefficient

Shanghai Yanpu  Qingdao Haier

Very weak diversification

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

Pair Corralation between Shanghai Yanpu and Qingdao Haier

Assuming the 90 days trading horizon Shanghai Yanpu Metal is expected to generate 0.83 times more return on investment than Qingdao Haier. However, Shanghai Yanpu Metal is 1.2 times less risky than Qingdao Haier. It trades about 0.05 of its potential returns per unit of risk. Qingdao Haier Biomedical is currently generating about 0.04 per unit of risk. If you would invest  3,043  in Shanghai Yanpu Metal on October 9, 2024 and sell it today you would earn a total of  569.00  from holding Shanghai Yanpu Metal or generate 18.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.45%
Values	Daily Returns

Shanghai Yanpu Metal  vs.  Qingdao Haier Biomedical

Shanghai Yanpu Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Yanpu Metal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Yanpu is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Qingdao Haier Biomedical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Qingdao Haier Biomedical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Qingdao Haier 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 Yanpu and Qingdao Haier

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

The idea behind Shanghai Yanpu Metal and Qingdao Haier Biomedical 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.