Correlation Between Shanghai Rendu and Anhui Jianghuai

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

Diversification Opportunities for Shanghai Rendu and Anhui Jianghuai

0.43

Correlation Coefficient

Shanghai Rendu  Anhui Jianghuai

Very weak diversification

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

Pair Corralation between Shanghai Rendu and Anhui Jianghuai

Assuming the 90 days trading horizon Shanghai Rendu is expected to generate 1.7 times less return on investment than Anhui Jianghuai. In addition to that, Shanghai Rendu is 1.08 times more volatile than Anhui Jianghuai Automobile. It trades about 0.04 of its total potential returns per unit of risk. Anhui Jianghuai Automobile is currently generating about 0.08 per unit of volatility. If you would invest  3,463  in Anhui Jianghuai Automobile on October 24, 2024 and sell it today you would earn a total of  543.00  from holding Anhui Jianghuai Automobile or generate 15.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Shanghai Rendu Biotechnology  vs.  Anhui Jianghuai Automobile

Shanghai Rendu Biote

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rendu Biotechnology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Rendu may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Anhui Jianghuai Auto

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Jianghuai Automobile are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Jianghuai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Rendu and Anhui Jianghuai

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

The idea behind Shanghai Rendu Biotechnology and Anhui Jianghuai Automobile 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.