Correlation Between Shanghai Sanyou and Shenwu Energy

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

By analyzing existing cross correlation between Shanghai Sanyou Medical and Shenwu Energy Saving, you can compare the effects of market volatilities on Shanghai Sanyou and Shenwu Energy 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 Sanyou with a short position of Shenwu Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Sanyou and Shenwu Energy.

Diversification Opportunities for Shanghai Sanyou and Shenwu Energy

0.91

Correlation Coefficient

Shanghai Sanyou  Shenwu Energy

Almost no diversification

The 3 months correlation between Shanghai and Shenwu is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Sanyou Medical and Shenwu Energy Saving in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenwu Energy Saving and Shanghai Sanyou 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 Sanyou Medical are associated (or correlated) with Shenwu Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenwu Energy Saving has no effect on the direction of Shanghai Sanyou i.e., Shanghai Sanyou and Shenwu Energy go up and down completely randomly.

Pair Corralation between Shanghai Sanyou and Shenwu Energy

Assuming the 90 days trading horizon Shanghai Sanyou is expected to generate 1.97 times less return on investment than Shenwu Energy. In addition to that, Shanghai Sanyou is 1.03 times more volatile than Shenwu Energy Saving. It trades about 0.13 of its total potential returns per unit of risk. Shenwu Energy Saving is currently generating about 0.27 per unit of volatility. If you would invest  248.00  in Shenwu Energy Saving on September 14, 2024 and sell it today you would earn a total of  185.00  from holding Shenwu Energy Saving or generate 74.6% return on investment over 90 days.

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

Shanghai Sanyou Medical  vs.  Shenwu Energy Saving

Shanghai Sanyou Medical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Sanyou Medical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Sanyou sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenwu Energy Saving

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenwu Energy Saving are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenwu Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Sanyou and Shenwu Energy

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

The idea behind Shanghai Sanyou Medical and Shenwu Energy Saving 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.