Correlation Between Shanghai Fudan and Shandong Longquan

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

Diversification Opportunities for Shanghai Fudan and Shandong Longquan

0.47

Correlation Coefficient

Shanghai Fudan  Shandong Longquan

Very weak diversification

The 3 months correlation between Shanghai and Shandong is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Fudan Microelectronic and Shandong Longquan Pipeline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Longquan 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 Shandong Longquan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Longquan has no effect on the direction of Shanghai Fudan i.e., Shanghai Fudan and Shandong Longquan go up and down completely randomly.

Pair Corralation between Shanghai Fudan and Shandong Longquan

Assuming the 90 days trading horizon Shanghai Fudan Microelectronics is expected to under-perform the Shandong Longquan. In addition to that, Shanghai Fudan is 1.26 times more volatile than Shandong Longquan Pipeline. It trades about -0.01 of its total potential returns per unit of risk. Shandong Longquan Pipeline is currently generating about 0.02 per unit of volatility. If you would invest  437.00  in Shandong Longquan Pipeline on October 4, 2024 and sell it today you would earn a total of  16.00  from holding Shandong Longquan Pipeline or generate 3.66% return on investment over 90 days.

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

Shanghai Fudan Microelectronic  vs.  Shandong Longquan Pipeline

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 somewhat strong basic indicators, Shanghai Fudan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shandong Longquan

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Shanghai Fudan and Shandong Longquan

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

The idea behind Shanghai Fudan Microelectronics and Shandong Longquan Pipeline 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.