Correlation Between Zhongyin Babi and Shanghai Yanpu

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

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

Diversification Opportunities for Zhongyin Babi and Shanghai Yanpu

0.79

Correlation Coefficient

Zhongyin Babi  Shanghai Yanpu

Poor diversification

The 3 months correlation between Zhongyin and Shanghai is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Zhongyin Babi Food and Shanghai Yanpu Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Yanpu Metal and Zhongyin Babi 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 Zhongyin Babi Food are associated (or correlated) with Shanghai Yanpu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Yanpu Metal has no effect on the direction of Zhongyin Babi i.e., Zhongyin Babi and Shanghai Yanpu go up and down completely randomly.

Pair Corralation between Zhongyin Babi and Shanghai Yanpu

Assuming the 90 days trading horizon Zhongyin Babi Food is expected to generate 1.85 times more return on investment than Shanghai Yanpu. However, Zhongyin Babi is 1.85 times more volatile than Shanghai Yanpu Metal. It trades about 0.12 of its potential returns per unit of risk. Shanghai Yanpu Metal is currently generating about -0.11 per unit of risk. If you would invest  1,626  in Zhongyin Babi Food on September 27, 2024 and sell it today you would earn a total of  140.00  from holding Zhongyin Babi Food or generate 8.61% return on investment over 90 days.

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

Zhongyin Babi Food  vs.  Shanghai Yanpu Metal

Zhongyin Babi Food

Risk-Adjusted Performance

7 of 100

OK

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

Shanghai Yanpu Metal

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Yanpu Metal are ranked lower than 10 (%) 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.

Pair Trading with Zhongyin Babi and Shanghai Yanpu

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

The idea behind Zhongyin Babi Food and Shanghai Yanpu Metal 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.