Correlation Between Semiconductor Manufacturing and Shandong

Can any of the company-specific risk be diversified away by investing in both Semiconductor Manufacturing and Shandong 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 Semiconductor Manufacturing and Shandong into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Semiconductor Manufacturing Electronics and Shandong Hi Speed RoadBridge, you can compare the effects of market volatilities on Semiconductor Manufacturing and Shandong 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 Semiconductor Manufacturing with a short position of Shandong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Semiconductor Manufacturing and Shandong.

Diversification Opportunities for Semiconductor Manufacturing and Shandong

0.76

Correlation Coefficient

Semiconductor Manufacturing  Shandong

Poor diversification

The 3 months correlation between Semiconductor and Shandong is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Semiconductor Manufacturing El and Shandong Hi Speed RoadBridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Hi Speed and Semiconductor Manufacturing 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 Semiconductor Manufacturing Electronics are associated (or correlated) with Shandong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Hi Speed has no effect on the direction of Semiconductor Manufacturing i.e., Semiconductor Manufacturing and Shandong go up and down completely randomly.

Pair Corralation between Semiconductor Manufacturing and Shandong

Assuming the 90 days trading horizon Semiconductor Manufacturing Electronics is expected to under-perform the Shandong. In addition to that, Semiconductor Manufacturing is 1.7 times more volatile than Shandong Hi Speed RoadBridge. It trades about -0.06 of its total potential returns per unit of risk. Shandong Hi Speed RoadBridge is currently generating about -0.05 per unit of volatility. If you would invest  609.00  in Shandong Hi Speed RoadBridge on December 29, 2024 and sell it today you would lose (21.00) from holding Shandong Hi Speed RoadBridge or give up 3.45% of portfolio value over 90 days.

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

Semiconductor Manufacturing El  vs.  Shandong Hi Speed RoadBridge

Semiconductor Manufacturing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Semiconductor Manufacturing Electronics 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.

Shandong Hi Speed

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shandong Hi Speed RoadBridge has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shandong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Semiconductor Manufacturing and Shandong

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

The idea behind Semiconductor Manufacturing Electronics and Shandong Hi Speed RoadBridge 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.