Correlation Between Shanghai Fudan and Chengtun Mining

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

Diversification Opportunities for Shanghai Fudan and Chengtun Mining

0.86

Correlation Coefficient

Shanghai Fudan  Chengtun Mining

Very poor diversification

The 3 months correlation between Shanghai and Chengtun is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Fudan Microelectronic and Chengtun Mining Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengtun Mining Group 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 Chengtun Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengtun Mining Group has no effect on the direction of Shanghai Fudan i.e., Shanghai Fudan and Chengtun Mining go up and down completely randomly.

Pair Corralation between Shanghai Fudan and Chengtun Mining

Assuming the 90 days trading horizon Shanghai Fudan Microelectronics is expected to under-perform the Chengtun Mining. In addition to that, Shanghai Fudan is 1.4 times more volatile than Chengtun Mining Group. It trades about -0.02 of its total potential returns per unit of risk. Chengtun Mining Group is currently generating about -0.01 per unit of volatility. If you would invest  596.00  in Chengtun Mining Group on September 21, 2024 and sell it today you would lose (131.00) from holding Chengtun Mining Group or give up 21.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.79%
Values	Daily Returns

Shanghai Fudan Microelectronic  vs.  Chengtun Mining Group

Shanghai Fudan Micro

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Fudan Microelectronics are ranked lower than 14 (%) 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.

Chengtun Mining Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chengtun Mining Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengtun Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Fudan and Chengtun Mining

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

The idea behind Shanghai Fudan Microelectronics and Chengtun Mining Group 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.