Correlation Between Shanghai Rendu and Liaoning Chengda

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

Diversification Opportunities for Shanghai Rendu and Liaoning Chengda

0.75

Correlation Coefficient

Shanghai Rendu  Liaoning Chengda

Poor diversification

The 3 months correlation between Shanghai and Liaoning is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Rendu Biotechnology and Liaoning Chengda Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Chengda Bio 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 Liaoning Chengda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Chengda Bio has no effect on the direction of Shanghai Rendu i.e., Shanghai Rendu and Liaoning Chengda go up and down completely randomly.

Pair Corralation between Shanghai Rendu and Liaoning Chengda

Assuming the 90 days trading horizon Shanghai Rendu Biotechnology is expected to generate 3.08 times more return on investment than Liaoning Chengda. However, Shanghai Rendu is 3.08 times more volatile than Liaoning Chengda Biotechnology. It trades about 0.04 of its potential returns per unit of risk. Liaoning Chengda Biotechnology is currently generating about -0.1 per unit of risk. If you would invest  3,210  in Shanghai Rendu Biotechnology on October 24, 2024 and sell it today you would earn a total of  202.00  from holding Shanghai Rendu Biotechnology or generate 6.29% return on investment over 90 days.

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

Shanghai Rendu Biotechnology  vs.  Liaoning Chengda Biotechnology

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.

Liaoning Chengda Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liaoning Chengda 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.

Pair Trading with Shanghai Rendu and Liaoning Chengda

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

The idea behind Shanghai Rendu Biotechnology and Liaoning Chengda Biotechnology 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.