Correlation Between Shanghai Lingyun and CNPC Capital

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

By analyzing existing cross correlation between Shanghai Lingyun Industries and CNPC Capital Co, you can compare the effects of market volatilities on Shanghai Lingyun and CNPC Capital 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 Lingyun with a short position of CNPC Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Lingyun and CNPC Capital.

Diversification Opportunities for Shanghai Lingyun and CNPC Capital

0.92

Correlation Coefficient

Shanghai Lingyun  CNPC Capital

Almost no diversification

The 3 months correlation between Shanghai and CNPC is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Lingyun Industries and CNPC Capital Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNPC Capital and Shanghai Lingyun 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 Lingyun Industries are associated (or correlated) with CNPC Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNPC Capital has no effect on the direction of Shanghai Lingyun i.e., Shanghai Lingyun and CNPC Capital go up and down completely randomly.

Pair Corralation between Shanghai Lingyun and CNPC Capital

Assuming the 90 days trading horizon Shanghai Lingyun is expected to generate 1.23 times less return on investment than CNPC Capital. But when comparing it to its historical volatility, Shanghai Lingyun Industries is 1.05 times less risky than CNPC Capital. It trades about 0.14 of its potential returns per unit of risk. CNPC Capital Co is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  506.00  in CNPC Capital Co on September 5, 2024 and sell it today you would earn a total of  250.00  from holding CNPC Capital Co or generate 49.41% return on investment over 90 days.

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

Shanghai Lingyun Industries  vs.  CNPC Capital Co

Shanghai Lingyun Ind

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Lingyun Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Lingyun sustained solid returns over the last few months and may actually be approaching a breakup point.

CNPC Capital

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CNPC Capital Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, CNPC Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Lingyun and CNPC Capital

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

The idea behind Shanghai Lingyun Industries and CNPC Capital Co 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.