Correlation Between Shanghai Fudan and Chongqing Sulian

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

Diversification Opportunities for Shanghai Fudan and Chongqing Sulian

0.76

Correlation Coefficient

Shanghai Fudan  Chongqing Sulian

Poor diversification

The 3 months correlation between Shanghai and Chongqing is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Fudan Microelectronic and Chongqing Sulian Plastic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Sulian 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 Chongqing Sulian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Sulian Plastic has no effect on the direction of Shanghai Fudan i.e., Shanghai Fudan and Chongqing Sulian go up and down completely randomly.

Pair Corralation between Shanghai Fudan and Chongqing Sulian

Assuming the 90 days trading horizon Shanghai Fudan Microelectronics is expected to generate 0.8 times more return on investment than Chongqing Sulian. However, Shanghai Fudan Microelectronics is 1.26 times less risky than Chongqing Sulian. It trades about -0.05 of its potential returns per unit of risk. Chongqing Sulian Plastic is currently generating about -0.04 per unit of risk. If you would invest  4,112  in Shanghai Fudan Microelectronics on September 20, 2024 and sell it today you would lose (132.00) from holding Shanghai Fudan Microelectronics or give up 3.21% 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.  Chongqing Sulian 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.

Chongqing Sulian Plastic

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Shanghai Fudan and Chongqing Sulian

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

The idea behind Shanghai Fudan Microelectronics and Chongqing Sulian 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.