Correlation Between Shanghai Lujiazui and China National

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

By analyzing existing cross correlation between Shanghai Lujiazui Finance and China National Medicines, you can compare the effects of market volatilities on Shanghai Lujiazui and China National 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 Lujiazui with a short position of China National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Lujiazui and China National.

Diversification Opportunities for Shanghai Lujiazui and China National

0.35

Correlation Coefficient

Shanghai Lujiazui  China National

Weak diversification

The 3 months correlation between Shanghai and China is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Lujiazui Finance and China National Medicines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China National Medicines and Shanghai Lujiazui 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 Lujiazui Finance are associated (or correlated) with China National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China National Medicines has no effect on the direction of Shanghai Lujiazui i.e., Shanghai Lujiazui and China National go up and down completely randomly.

Pair Corralation between Shanghai Lujiazui and China National

Assuming the 90 days trading horizon Shanghai Lujiazui Finance is expected to generate 1.08 times more return on investment than China National. However, Shanghai Lujiazui is 1.08 times more volatile than China National Medicines. It trades about -0.09 of its potential returns per unit of risk. China National Medicines is currently generating about -0.17 per unit of risk. If you would invest  51.00  in Shanghai Lujiazui Finance on December 25, 2024 and sell it today you would lose (4.00) from holding Shanghai Lujiazui Finance or give up 7.84% of portfolio value over 90 days.

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

Shanghai Lujiazui Finance  vs.  China National Medicines

Shanghai Lujiazui Finance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Lujiazui Finance 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.

China National Medicines

Risk-Adjusted Performance

Very Weak

Over the last 90 days China National Medicines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shanghai Lujiazui and China National

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

The idea behind Shanghai Lujiazui Finance and China National Medicines 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.