Correlation Between Shanghai and Chengdu Xuguang

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

By analyzing existing cross correlation between Shanghai SK Automation and Chengdu Xuguang Electronics, you can compare the effects of market volatilities on Shanghai and Chengdu Xuguang 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 with a short position of Chengdu Xuguang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai and Chengdu Xuguang.

Diversification Opportunities for Shanghai and Chengdu Xuguang

0.56

Correlation Coefficient

Shanghai  Chengdu Xuguang

Very weak diversification

The 3 months correlation between Shanghai and Chengdu is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai SK Automation and Chengdu Xuguang Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Xuguang Elec and Shanghai 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 SK Automation are associated (or correlated) with Chengdu Xuguang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Xuguang Elec has no effect on the direction of Shanghai i.e., Shanghai and Chengdu Xuguang go up and down completely randomly.

Pair Corralation between Shanghai and Chengdu Xuguang

Assuming the 90 days trading horizon Shanghai SK Automation is expected to generate 1.04 times more return on investment than Chengdu Xuguang. However, Shanghai is 1.04 times more volatile than Chengdu Xuguang Electronics. It trades about -0.07 of its potential returns per unit of risk. Chengdu Xuguang Electronics is currently generating about -0.21 per unit of risk. If you would invest  4,032  in Shanghai SK Automation on October 6, 2024 and sell it today you would lose (461.00) from holding Shanghai SK Automation or give up 11.43% of portfolio value over 90 days.

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

Shanghai SK Automation  vs.  Chengdu Xuguang Electronics

Shanghai SK Automation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai SK Automation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Chengdu Xuguang Elec

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Shanghai SK Automation and Chengdu Xuguang Electronics 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.