Correlation Between Shanghai Junshi and PKU HealthCare

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

Diversification Opportunities for Shanghai Junshi and PKU HealthCare

0.66

Correlation Coefficient

Shanghai Junshi  PKU HealthCare

Poor diversification

The 3 months correlation between Shanghai and PKU is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Junshi Biosciences and PKU HealthCare Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PKU HealthCare Corp 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 PKU HealthCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PKU HealthCare Corp has no effect on the direction of Shanghai Junshi i.e., Shanghai Junshi and PKU HealthCare go up and down completely randomly.

Pair Corralation between Shanghai Junshi and PKU HealthCare

Assuming the 90 days trading horizon Shanghai Junshi Biosciences is expected to under-perform the PKU HealthCare. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Junshi Biosciences is 1.49 times less risky than PKU HealthCare. The stock trades about -0.07 of its potential returns per unit of risk. The PKU HealthCare Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  640.00  in PKU HealthCare Corp on September 22, 2024 and sell it today you would earn a total of  40.00  from holding PKU HealthCare Corp or generate 6.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Shanghai Junshi Biosciences  vs.  PKU HealthCare Corp

Shanghai Junshi Bios

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Junshi Biosciences are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Junshi sustained solid returns over the last few months and may actually be approaching a breakup point.

PKU HealthCare Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PKU HealthCare Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PKU HealthCare sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Junshi and PKU HealthCare

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

The idea behind Shanghai Junshi Biosciences and PKU HealthCare Corp 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.