Correlation Between Shanghai OPM and China High

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

By analyzing existing cross correlation between Shanghai OPM Biosciences and China High Speed Railway, you can compare the effects of market volatilities on Shanghai OPM and China High 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 OPM with a short position of China High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai OPM and China High.

Diversification Opportunities for Shanghai OPM and China High

0.6

Correlation Coefficient

Shanghai OPM  China High

Poor diversification

The 3 months correlation between Shanghai and China is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai OPM Biosciences and China High Speed Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China High Speed and Shanghai OPM 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 OPM Biosciences are associated (or correlated) with China High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China High Speed has no effect on the direction of Shanghai OPM i.e., Shanghai OPM and China High go up and down completely randomly.

Pair Corralation between Shanghai OPM and China High

Assuming the 90 days trading horizon Shanghai OPM is expected to generate 2.85 times less return on investment than China High. In addition to that, Shanghai OPM is 1.02 times more volatile than China High Speed Railway. It trades about 0.01 of its total potential returns per unit of risk. China High Speed Railway is currently generating about 0.04 per unit of volatility. If you would invest  252.00  in China High Speed Railway on October 6, 2024 and sell it today you would earn a total of  13.00  from holding China High Speed Railway or generate 5.16% return on investment over 90 days.

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

Shanghai OPM Biosciences  vs.  China High Speed Railway

Shanghai OPM Biosciences

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai OPM Biosciences are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shanghai OPM is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China High Speed

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Shanghai OPM and China High

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

The idea behind Shanghai OPM Biosciences and China High Speed Railway 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.