Correlation Between Jiangsu GDK and Shanghai OPM

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

By analyzing existing cross correlation between Jiangsu GDK Biotechnology and Shanghai OPM Biosciences, you can compare the effects of market volatilities on Jiangsu GDK and Shanghai OPM 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 Jiangsu GDK with a short position of Shanghai OPM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jiangsu GDK and Shanghai OPM.

Diversification Opportunities for Jiangsu GDK and Shanghai OPM

0.38

Correlation Coefficient

Jiangsu GDK  Shanghai OPM

Weak diversification

The 3 months correlation between Jiangsu and Shanghai is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Jiangsu GDK Biotechnology and Shanghai OPM Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai OPM Biosciences and Jiangsu GDK 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 Jiangsu GDK Biotechnology are associated (or correlated) with Shanghai OPM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai OPM Biosciences has no effect on the direction of Jiangsu GDK i.e., Jiangsu GDK and Shanghai OPM go up and down completely randomly.

Pair Corralation between Jiangsu GDK and Shanghai OPM

Assuming the 90 days trading horizon Jiangsu GDK Biotechnology is expected to under-perform the Shanghai OPM. In addition to that, Jiangsu GDK is 1.11 times more volatile than Shanghai OPM Biosciences. It trades about -0.04 of its total potential returns per unit of risk. Shanghai OPM Biosciences is currently generating about -0.03 per unit of volatility. If you would invest  3,830  in Shanghai OPM Biosciences on December 27, 2024 and sell it today you would lose (196.00) from holding Shanghai OPM Biosciences or give up 5.12% of portfolio value over 90 days.

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

Jiangsu GDK Biotechnology  vs.  Shanghai OPM Biosciences

Jiangsu GDK Biotechnology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jiangsu GDK Biotechnology 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.

Shanghai OPM Biosciences

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Jiangsu GDK and Shanghai OPM

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

The idea behind Jiangsu GDK Biotechnology and Shanghai OPM Biosciences 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.