Correlation Between Song Shang and GrandTech

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

By analyzing existing cross correlation between Song Shang Electronics and GrandTech CG Systems, you can compare the effects of market volatilities on Song Shang and GrandTech 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 Song Shang with a short position of GrandTech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Shang and GrandTech.

Diversification Opportunities for Song Shang and GrandTech

0.82

Correlation Coefficient

Song Shang  GrandTech

Very poor diversification

The 3 months correlation between Song and GrandTech is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Song Shang Electronics and GrandTech CG Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GrandTech CG Systems and Song Shang 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 Song Shang Electronics are associated (or correlated) with GrandTech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GrandTech CG Systems has no effect on the direction of Song Shang i.e., Song Shang and GrandTech go up and down completely randomly.

Pair Corralation between Song Shang and GrandTech

Assuming the 90 days trading horizon Song Shang Electronics is expected to generate 1.59 times more return on investment than GrandTech. However, Song Shang is 1.59 times more volatile than GrandTech CG Systems. It trades about 0.12 of its potential returns per unit of risk. GrandTech CG Systems is currently generating about 0.07 per unit of risk. If you would invest  2,570  in Song Shang Electronics on December 31, 2024 and sell it today you would earn a total of  295.00  from holding Song Shang Electronics or generate 11.48% return on investment over 90 days.

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

Song Shang Electronics  vs.  GrandTech CG Systems

Song Shang Electronics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Song Shang Electronics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Song Shang showed solid returns over the last few months and may actually be approaching a breakup point.

GrandTech CG Systems

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GrandTech CG Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, GrandTech is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Song Shang and GrandTech

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

The idea behind Song Shang Electronics and GrandTech CG Systems 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.