Correlation Between Shanghai Fudan and Cangzhou Mingzhu

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

By analyzing existing cross correlation between Shanghai Fudan Microelectronics and Cangzhou Mingzhu Plastic, you can compare the effects of market volatilities on Shanghai Fudan and Cangzhou Mingzhu 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 Fudan with a short position of Cangzhou Mingzhu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Fudan and Cangzhou Mingzhu.

Diversification Opportunities for Shanghai Fudan and Cangzhou Mingzhu

0.66

Correlation Coefficient

Shanghai Fudan  Cangzhou Mingzhu

Poor diversification

The 3 months correlation between Shanghai and Cangzhou is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Fudan Microelectronic and Cangzhou Mingzhu Plastic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cangzhou Mingzhu Plastic and Shanghai Fudan 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 Fudan Microelectronics are associated (or correlated) with Cangzhou Mingzhu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cangzhou Mingzhu Plastic has no effect on the direction of Shanghai Fudan i.e., Shanghai Fudan and Cangzhou Mingzhu go up and down completely randomly.

Pair Corralation between Shanghai Fudan and Cangzhou Mingzhu

Assuming the 90 days trading horizon Shanghai Fudan Microelectronics is expected to under-perform the Cangzhou Mingzhu. In addition to that, Shanghai Fudan is 1.99 times more volatile than Cangzhou Mingzhu Plastic. It trades about -0.02 of its total potential returns per unit of risk. Cangzhou Mingzhu Plastic is currently generating about -0.01 per unit of volatility. If you would invest  438.00  in Cangzhou Mingzhu Plastic on September 20, 2024 and sell it today you would lose (61.00) from holding Cangzhou Mingzhu Plastic or give up 13.93% of portfolio value over 90 days.

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

Shanghai Fudan Microelectronic  vs.  Cangzhou Mingzhu Plastic

Shanghai Fudan Micro

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Fudan Microelectronics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Fudan sustained solid returns over the last few months and may actually be approaching a breakup point.

Cangzhou Mingzhu Plastic

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cangzhou Mingzhu Plastic are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cangzhou Mingzhu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Fudan and Cangzhou Mingzhu

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

The idea behind Shanghai Fudan Microelectronics and Cangzhou Mingzhu Plastic 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.