Correlation Between Shanghai and Hunan Oil

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

Diversification Opportunities for Shanghai and Hunan Oil

0.46

Correlation Coefficient

Shanghai  Hunan Oil

Very weak diversification

The 3 months correlation between Shanghai and Hunan is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai SK Automation and Hunan Oil Pump in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunan Oil Pump 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 Hunan Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunan Oil Pump has no effect on the direction of Shanghai i.e., Shanghai and Hunan Oil go up and down completely randomly.

Pair Corralation between Shanghai and Hunan Oil

Assuming the 90 days trading horizon Shanghai SK Automation is expected to under-perform the Hunan Oil. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai SK Automation is 1.21 times less risky than Hunan Oil. The stock trades about -0.07 of its potential returns per unit of risk. The Hunan Oil Pump is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,229  in Hunan Oil Pump on October 6, 2024 and sell it today you would lose (240.00) from holding Hunan Oil Pump or give up 10.77% 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.  Hunan Oil Pump

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.

Hunan Oil Pump

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Oil Pump are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Oil may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shanghai and Hunan Oil

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

The idea behind Shanghai SK Automation and Hunan Oil Pump 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.