Correlation Between Liaoning Chengda and Shanghai Jinfeng

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

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

Diversification Opportunities for Liaoning Chengda and Shanghai Jinfeng

0.84

Correlation Coefficient

Liaoning Chengda  Shanghai Jinfeng

Very poor diversification

The 3 months correlation between Liaoning and Shanghai is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Chengda Biotechnology and Shanghai Jinfeng Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Jinfeng Wine and Liaoning Chengda 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 Liaoning Chengda Biotechnology are associated (or correlated) with Shanghai Jinfeng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Jinfeng Wine has no effect on the direction of Liaoning Chengda i.e., Liaoning Chengda and Shanghai Jinfeng go up and down completely randomly.

Pair Corralation between Liaoning Chengda and Shanghai Jinfeng

Assuming the 90 days trading horizon Liaoning Chengda Biotechnology is expected to under-perform the Shanghai Jinfeng. But the stock apears to be less risky and, when comparing its historical volatility, Liaoning Chengda Biotechnology is 1.63 times less risky than Shanghai Jinfeng. The stock trades about -0.09 of its potential returns per unit of risk. The Shanghai Jinfeng Wine is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  559.00  in Shanghai Jinfeng Wine on September 12, 2024 and sell it today you would earn a total of  42.00  from holding Shanghai Jinfeng Wine or generate 7.51% return on investment over 90 days.

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

Liaoning Chengda Biotechnology  vs.  Shanghai Jinfeng Wine

Liaoning Chengda Bio

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Chengda Biotechnology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liaoning Chengda sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Jinfeng Wine

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Liaoning Chengda and Shanghai Jinfeng

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

The idea behind Liaoning Chengda Biotechnology and Shanghai Jinfeng Wine 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.