Correlation Between Sinopec Shanghai and Li FT

Can any of the company-specific risk be diversified away by investing in both Sinopec Shanghai and Li FT 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 Li FT 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 Li FT Power, you can compare the effects of market volatilities on Sinopec Shanghai and Li FT 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 Li FT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sinopec Shanghai and Li FT.

Diversification Opportunities for Sinopec Shanghai and Li FT

-0.57

Correlation Coefficient

Sinopec Shanghai  Li FT

Excellent diversification

The 3 months correlation between Sinopec and WS0 is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Sinopec Shanghai Petrochemical and Li FT Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li FT Power 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 Li FT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Li FT Power has no effect on the direction of Sinopec Shanghai i.e., Sinopec Shanghai and Li FT go up and down completely randomly.

Pair Corralation between Sinopec Shanghai and Li FT

Assuming the 90 days trading horizon Sinopec Shanghai Petrochemical is expected to under-perform the Li FT. But the stock apears to be less risky and, when comparing its historical volatility, Sinopec Shanghai Petrochemical is 1.75 times less risky than Li FT. The stock trades about -0.08 of its potential returns per unit of risk. The Li FT Power is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  188.00  in Li FT Power on October 25, 2024 and sell it today you would earn a total of  12.00  from holding Li FT Power or generate 6.38% return on investment over 90 days.

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

Sinopec Shanghai Petrochemical  vs.  Li FT Power

Sinopec Shanghai Pet

Risk-Adjusted Performance

3 of 100

Insignificant

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 fragile forward-looking indicators, Sinopec Shanghai reported solid returns over the last few months and may actually be approaching a breakup point.

Li FT Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Li FT Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Sinopec Shanghai and Li FT

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

The idea behind Sinopec Shanghai Petrochemical and Li FT Power 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.