Correlation Between Sinopec Shanghai and DAIDO METAL

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

By analyzing existing cross correlation between Sinopec Shanghai Petrochemical and DAIDO METAL TD, you can compare the effects of market volatilities on Sinopec Shanghai and DAIDO METAL 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 Sinopec Shanghai with a short position of DAIDO METAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sinopec Shanghai and DAIDO METAL.

Diversification Opportunities for Sinopec Shanghai and DAIDO METAL

0.12

Correlation Coefficient

Sinopec Shanghai  DAIDO METAL

Average diversification

The 3 months correlation between Sinopec and DAIDO is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Sinopec Shanghai Petrochemical and DAIDO METAL TD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DAIDO METAL TD and Sinopec Shanghai 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 Sinopec Shanghai Petrochemical are associated (or correlated) with DAIDO METAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DAIDO METAL TD has no effect on the direction of Sinopec Shanghai i.e., Sinopec Shanghai and DAIDO METAL go up and down completely randomly.

Pair Corralation between Sinopec Shanghai and DAIDO METAL

Assuming the 90 days trading horizon Sinopec Shanghai Petrochemical is expected to generate 3.2 times more return on investment than DAIDO METAL. However, Sinopec Shanghai is 3.2 times more volatile than DAIDO METAL TD. It trades about 0.05 of its potential returns per unit of risk. DAIDO METAL TD is currently generating about 0.08 per unit of risk. If you would invest  14.00  in Sinopec Shanghai Petrochemical on December 21, 2024 and sell it today you would earn a total of  1.00  from holding Sinopec Shanghai Petrochemical or generate 7.14% return on investment over 90 days.

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

Sinopec Shanghai Petrochemical  vs.  DAIDO METAL TD

Sinopec Shanghai Pet

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sinopec Shanghai Petrochemical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward-looking indicators, Sinopec Shanghai reported solid returns over the last few months and may actually be approaching a breakup point.

DAIDO METAL TD

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DAIDO METAL TD are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DAIDO METAL may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Sinopec Shanghai and DAIDO METAL

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

The idea behind Sinopec Shanghai Petrochemical and DAIDO METAL TD 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.