Correlation Between Henry Schein and Shanghai Pharmaceuticals

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

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

Diversification Opportunities for Henry Schein and Shanghai Pharmaceuticals

0.64

Correlation Coefficient

Henry Schein  Shanghai Pharmaceuticals

Poor diversification

The 3 months correlation between Henry and Shanghai is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Henry Schein and Shanghai Pharmaceuticals Holdi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Pharmaceuticals and Henry Schein 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 Henry Schein 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 Henry Schein i.e., Henry Schein and Shanghai Pharmaceuticals go up and down completely randomly.

Pair Corralation between Henry Schein and Shanghai Pharmaceuticals

Assuming the 90 days horizon Henry Schein is expected to generate 6.78 times less return on investment than Shanghai Pharmaceuticals. In addition to that, Henry Schein is 1.1 times more volatile than Shanghai Pharmaceuticals Holding. It trades about 0.02 of its total potential returns per unit of risk. Shanghai Pharmaceuticals Holding is currently generating about 0.14 per unit of volatility. If you would invest  142.00  in Shanghai Pharmaceuticals Holding on September 23, 2024 and sell it today you would earn a total of  16.00  from holding Shanghai Pharmaceuticals Holding or generate 11.27% return on investment over 90 days.

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

Henry Schein  vs.  Shanghai Pharmaceuticals Holdi

Henry Schein

Risk-Adjusted Performance

3 of 100

Insignificant

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

Shanghai Pharmaceuticals

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Henry Schein and Shanghai Pharmaceuticals

The main advantage of trading using opposite Henry Schein and Shanghai Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Henry Schein 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 Henry Schein 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.