Correlation Between Shanghai Fudan and Yili Chuanning

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

Diversification Opportunities for Shanghai Fudan and Yili Chuanning

0.67

Correlation Coefficient

Shanghai Fudan  Yili Chuanning

Poor diversification

The 3 months correlation between Shanghai and Yili is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Fudan Microelectronic and Yili Chuanning Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yili Chuanning Biote 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 Yili Chuanning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yili Chuanning Biote has no effect on the direction of Shanghai Fudan i.e., Shanghai Fudan and Yili Chuanning go up and down completely randomly.

Pair Corralation between Shanghai Fudan and Yili Chuanning

Assuming the 90 days trading horizon Shanghai Fudan Microelectronics is expected to under-perform the Yili Chuanning. In addition to that, Shanghai Fudan is 1.17 times more volatile than Yili Chuanning Biotechnology. It trades about -0.01 of its total potential returns per unit of risk. Yili Chuanning Biotechnology is currently generating about 0.03 per unit of volatility. If you would invest  886.00  in Yili Chuanning Biotechnology on October 4, 2024 and sell it today you would earn a total of  300.00  from holding Yili Chuanning Biotechnology or generate 33.86% return on investment over 90 days.

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

Shanghai Fudan Microelectronic  vs.  Yili Chuanning Biotechnology

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.

Yili Chuanning Biote

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yili Chuanning Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shanghai Fudan and Yili Chuanning

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

The idea behind Shanghai Fudan Microelectronics and Yili Chuanning Biotechnology 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.