Correlation Between ATT and Shanghai Electric

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

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

Diversification Opportunities for ATT and Shanghai Electric

-0.17

Correlation Coefficient

ATT  Shanghai Electric

Good diversification

The 3 months correlation between ATT and Shanghai is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Shanghai Electric Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Electric and ATT 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 ATT Inc are associated (or correlated) with Shanghai Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Electric has no effect on the direction of ATT i.e., ATT and Shanghai Electric go up and down completely randomly.

Pair Corralation between ATT and Shanghai Electric

Taking into account the 90-day investment horizon ATT Inc is expected to generate 0.43 times more return on investment than Shanghai Electric. However, ATT Inc is 2.32 times less risky than Shanghai Electric. It trades about 0.21 of its potential returns per unit of risk. Shanghai Electric Group is currently generating about -0.02 per unit of risk. If you would invest  2,257  in ATT Inc on December 27, 2024 and sell it today you would earn a total of  474.00  from holding ATT Inc or generate 21.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

ATT Inc  vs.  Shanghai Electric Group

ATT Inc

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, ATT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Electric Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Shanghai Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ATT and Shanghai Electric

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

The idea behind ATT Inc and Shanghai Electric Group 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.