Correlation Between Shanghai Junshi and China National

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

Diversification Opportunities for Shanghai Junshi and China National

0.43

Correlation Coefficient

Shanghai Junshi  China National

Very weak diversification

The 3 months correlation between Shanghai and China is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Junshi Biosciences and China National Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China National Software 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 China National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China National Software has no effect on the direction of Shanghai Junshi i.e., Shanghai Junshi and China National go up and down completely randomly.

Pair Corralation between Shanghai Junshi and China National

Assuming the 90 days trading horizon Shanghai Junshi Biosciences is expected to under-perform the China National. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Junshi Biosciences is 1.99 times less risky than China National. The stock trades about -0.15 of its potential returns per unit of risk. The China National Software is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,127  in China National Software on October 22, 2024 and sell it today you would earn a total of  413.00  from holding China National Software or generate 10.01% return on investment over 90 days.

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

Shanghai Junshi Biosciences  vs.  China National Software

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.

China National Software

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China National Software are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China National sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Junshi and China National

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

The idea behind Shanghai Junshi Biosciences and China National Software 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.