Correlation Between Shanghai Rendu and GEM

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

By analyzing existing cross correlation between Shanghai Rendu Biotechnology and GEM Co, you can compare the effects of market volatilities on Shanghai Rendu and GEM 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 Rendu with a short position of GEM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Rendu and GEM.

Diversification Opportunities for Shanghai Rendu and GEM

0.68

Correlation Coefficient

Shanghai Rendu  GEM

Poor diversification

The 3 months correlation between Shanghai and GEM is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Rendu Biotechnology and GEM Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEM Co and Shanghai Rendu 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 Rendu Biotechnology are associated (or correlated) with GEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEM Co has no effect on the direction of Shanghai Rendu i.e., Shanghai Rendu and GEM go up and down completely randomly.

Pair Corralation between Shanghai Rendu and GEM

Assuming the 90 days trading horizon Shanghai Rendu Biotechnology is expected to generate 1.84 times more return on investment than GEM. However, Shanghai Rendu is 1.84 times more volatile than GEM Co. It trades about 0.13 of its potential returns per unit of risk. GEM Co is currently generating about 0.01 per unit of risk. If you would invest  2,677  in Shanghai Rendu Biotechnology on September 27, 2024 and sell it today you would earn a total of  936.00  from holding Shanghai Rendu Biotechnology or generate 34.96% return on investment over 90 days.

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

Shanghai Rendu Biotechnology  vs.  GEM Co

Shanghai Rendu Biote

Risk-Adjusted Performance

9 of 100

Good

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

GEM Co

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GEM Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, GEM 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 Rendu and GEM

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

The idea behind Shanghai Rendu Biotechnology and GEM Co 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.