Correlation Between Shanghai Fudan and Shenzhen Glory

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

Diversification Opportunities for Shanghai Fudan and Shenzhen Glory

0.12

Correlation Coefficient

Shanghai Fudan  Shenzhen Glory

Average diversification

The 3 months correlation between Shanghai and Shenzhen is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Fudan Microelectronic and Shenzhen Glory Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Glory Medical 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 Shenzhen Glory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Glory Medical has no effect on the direction of Shanghai Fudan i.e., Shanghai Fudan and Shenzhen Glory go up and down completely randomly.

Pair Corralation between Shanghai Fudan and Shenzhen Glory

Assuming the 90 days trading horizon Shanghai Fudan Microelectronics is expected to under-perform the Shenzhen Glory. In addition to that, Shanghai Fudan is 1.3 times more volatile than Shenzhen Glory Medical. It trades about -0.05 of its total potential returns per unit of risk. Shenzhen Glory Medical is currently generating about -0.05 per unit of volatility. If you would invest  331.00  in Shenzhen Glory Medical on October 8, 2024 and sell it today you would lose (43.00) from holding Shenzhen Glory Medical or give up 12.99% of portfolio value over 90 days.

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

Shanghai Fudan Microelectronic  vs.  Shenzhen Glory Medical

Shanghai Fudan Micro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Fudan Microelectronics 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.

Shenzhen Glory Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen Glory Medical 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 Fudan and Shenzhen Glory

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

The idea behind Shanghai Fudan Microelectronics and Shenzhen Glory Medical 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.