Correlation Between Shanghai Yanpu and Circuit Fabology

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

Diversification Opportunities for Shanghai Yanpu and Circuit Fabology

0.64

Correlation Coefficient

Shanghai Yanpu  Circuit Fabology

Poor diversification

The 3 months correlation between Shanghai and Circuit is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Yanpu Metal and Circuit Fabology Microelectron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Circuit Fabology Mic 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 Circuit Fabology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Circuit Fabology Mic has no effect on the direction of Shanghai Yanpu i.e., Shanghai Yanpu and Circuit Fabology go up and down completely randomly.

Pair Corralation between Shanghai Yanpu and Circuit Fabology

Assuming the 90 days trading horizon Shanghai Yanpu Metal is expected to under-perform the Circuit Fabology. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Yanpu Metal is 1.0 times less risky than Circuit Fabology. The stock trades about -0.16 of its potential returns per unit of risk. The Circuit Fabology Microelectronics is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  6,501  in Circuit Fabology Microelectronics on September 30, 2024 and sell it today you would lose (313.00) from holding Circuit Fabology Microelectronics or give up 4.81% of portfolio value over 90 days.

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

Shanghai Yanpu Metal  vs.  Circuit Fabology Microelectron

Shanghai Yanpu Metal

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Yanpu Metal are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Yanpu sustained solid returns over the last few months and may actually be approaching a breakup point.

Circuit Fabology Mic

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Shanghai Yanpu Metal and Circuit Fabology Microelectronics 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.