Correlation Between Shanghai Pharmaceuticals and Sinopharm Group

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

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

Diversification Opportunities for Shanghai Pharmaceuticals and Sinopharm Group

0.93

Correlation Coefficient

Shanghai Pharmaceuticals  Sinopharm Group

Almost no diversification

The 3 months correlation between Shanghai and Sinopharm is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Pharmaceuticals Holdi and Sinopharm Group Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinopharm Group and Shanghai Pharmaceuticals 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 Pharmaceuticals Holding are associated (or correlated) with Sinopharm Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinopharm Group has no effect on the direction of Shanghai Pharmaceuticals i.e., Shanghai Pharmaceuticals and Sinopharm Group go up and down completely randomly.

Pair Corralation between Shanghai Pharmaceuticals and Sinopharm Group

Assuming the 90 days horizon Shanghai Pharmaceuticals is expected to generate 1.2 times less return on investment than Sinopharm Group. But when comparing it to its historical volatility, Shanghai Pharmaceuticals Holding is 1.07 times less risky than Sinopharm Group. It trades about 0.2 of its potential returns per unit of risk. Sinopharm Group Co is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  242.00  in Sinopharm Group Co on September 23, 2024 and sell it today you would earn a total of  22.00  from holding Sinopharm Group Co or generate 9.09% return on investment over 90 days.

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

Shanghai Pharmaceuticals Holdi  vs.  Sinopharm Group Co

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.

Sinopharm Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sinopharm Group Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sinopharm Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Pharmaceuticals and Sinopharm Group

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

The idea behind Shanghai Pharmaceuticals Holding and Sinopharm Group 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.

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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.