Correlation Between Shanghai Junshi and Chengdu Xingrong

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

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

Diversification Opportunities for Shanghai Junshi and Chengdu Xingrong

0.05

Correlation Coefficient

Shanghai Junshi  Chengdu Xingrong

Significant diversification

The 3 months correlation between Shanghai and Chengdu is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Junshi Biosciences and Chengdu Xingrong Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Xingrong Inv and Shanghai Junshi 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 Junshi Biosciences are associated (or correlated) with Chengdu Xingrong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Xingrong Inv has no effect on the direction of Shanghai Junshi i.e., Shanghai Junshi and Chengdu Xingrong go up and down completely randomly.

Pair Corralation between Shanghai Junshi and Chengdu Xingrong

Assuming the 90 days trading horizon Shanghai Junshi Biosciences is expected to under-perform the Chengdu Xingrong. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Junshi Biosciences is 1.26 times less risky than Chengdu Xingrong. The stock trades about -0.8 of its potential returns per unit of risk. The Chengdu Xingrong Investment is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  714.00  in Chengdu Xingrong Investment on October 12, 2024 and sell it today you would lose (8.00) from holding Chengdu Xingrong Investment or give up 1.12% of portfolio value over 90 days.

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

Shanghai Junshi Biosciences  vs.  Chengdu Xingrong Investment

Shanghai Junshi Bios

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Junshi Biosciences 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 Xingrong Inv

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Shanghai Junshi Biosciences and Chengdu Xingrong Investment 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.