Correlation Between Shanghai CEO and Westone Information

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

By analyzing existing cross correlation between Shanghai CEO Environmental and Westone Information Industry, you can compare the effects of market volatilities on Shanghai CEO and Westone Information 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 CEO with a short position of Westone Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai CEO and Westone Information.

Diversification Opportunities for Shanghai CEO and Westone Information

0.87

Correlation Coefficient

Shanghai CEO  Westone Information

Very poor diversification

The 3 months correlation between Shanghai and Westone is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai CEO Environmental and Westone Information Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westone Information and Shanghai CEO 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 CEO Environmental are associated (or correlated) with Westone Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westone Information has no effect on the direction of Shanghai CEO i.e., Shanghai CEO and Westone Information go up and down completely randomly.

Pair Corralation between Shanghai CEO and Westone Information

Assuming the 90 days trading horizon Shanghai CEO Environmental is expected to under-perform the Westone Information. In addition to that, Shanghai CEO is 1.32 times more volatile than Westone Information Industry. It trades about -0.2 of its total potential returns per unit of risk. Westone Information Industry is currently generating about -0.04 per unit of volatility. If you would invest  1,749  in Westone Information Industry on September 26, 2024 and sell it today you would lose (33.00) from holding Westone Information Industry or give up 1.89% of portfolio value over 90 days.

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

Shanghai CEO Environmental  vs.  Westone Information Industry

Shanghai CEO Environ

Risk-Adjusted Performance

3 of 100

Modest

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

Westone Information

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westone Information Industry are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Westone Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai CEO and Westone Information

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

The idea behind Shanghai CEO Environmental and Westone Information Industry 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.