Correlation Between Shanghai Rendu and Zhejiang Juhua

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

Diversification Opportunities for Shanghai Rendu and Zhejiang Juhua

-0.67

Correlation Coefficient

Shanghai Rendu  Zhejiang Juhua

Excellent diversification

The 3 months correlation between Shanghai and Zhejiang is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Rendu Biotechnology and Zhejiang Juhua Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Juhua 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 Zhejiang Juhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Juhua has no effect on the direction of Shanghai Rendu i.e., Shanghai Rendu and Zhejiang Juhua go up and down completely randomly.

Pair Corralation between Shanghai Rendu and Zhejiang Juhua

Assuming the 90 days trading horizon Shanghai Rendu Biotechnology is expected to under-perform the Zhejiang Juhua. In addition to that, Shanghai Rendu is 1.21 times more volatile than Zhejiang Juhua Co. It trades about -0.07 of its total potential returns per unit of risk. Zhejiang Juhua Co is currently generating about 0.06 per unit of volatility. If you would invest  2,284  in Zhejiang Juhua Co on December 2, 2024 and sell it today you would earn a total of  154.00  from holding Zhejiang Juhua Co or generate 6.74% return on investment over 90 days.

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

Shanghai Rendu Biotechnology  vs.  Zhejiang Juhua Co

Shanghai Rendu Biote

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Rendu Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Zhejiang Juhua

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Juhua Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Juhua may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Shanghai Rendu and Zhejiang Juhua

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

The idea behind Shanghai Rendu Biotechnology and Zhejiang Juhua 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.