Correlation Between Alphabet and Shanghai Pharmaceuticals

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

By analyzing existing cross correlation between Alphabet Inc Class C and Shanghai Pharmaceuticals Holding, you can compare the effects of market volatilities on Alphabet and Shanghai Pharmaceuticals 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 Alphabet with a short position of Shanghai Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Shanghai Pharmaceuticals.

Diversification Opportunities for Alphabet and Shanghai Pharmaceuticals

0.63

Correlation Coefficient

Alphabet  Shanghai Pharmaceuticals

Poor diversification

The 3 months correlation between Alphabet and Shanghai is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Shanghai Pharmaceuticals Holdi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Pharmaceuticals and Alphabet 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 Alphabet Inc Class C are associated (or correlated) with Shanghai Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Pharmaceuticals has no effect on the direction of Alphabet i.e., Alphabet and Shanghai Pharmaceuticals go up and down completely randomly.

Pair Corralation between Alphabet and Shanghai Pharmaceuticals

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.7 times more return on investment than Shanghai Pharmaceuticals. However, Alphabet is 1.7 times more volatile than Shanghai Pharmaceuticals Holding. It trades about 0.24 of its potential returns per unit of risk. Shanghai Pharmaceuticals Holding is currently generating about -0.07 per unit of risk. If you would invest  17,710  in Alphabet Inc Class C on October 10, 2024 and sell it today you would earn a total of  1,961  from holding Alphabet Inc Class C or generate 11.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.0%
Values	Daily Returns

Alphabet Inc Class C  vs.  Shanghai Pharmaceuticals Holdi

Alphabet Class C

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Pharmaceuticals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Pharmaceuticals Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Shanghai Pharmaceuticals is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alphabet and Shanghai Pharmaceuticals

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

The idea behind Alphabet Inc Class C and Shanghai Pharmaceuticals Holding 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.