Correlation Between Ultra Clean and Sinopec Shanghai

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

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

Diversification Opportunities for Ultra Clean and Sinopec Shanghai

0.18

Correlation Coefficient

Ultra Clean  Sinopec Shanghai

Average diversification

The 3 months correlation between Ultra and Sinopec is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Clean Holdings and Sinopec Shanghai Petrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinopec Shanghai Pet and Ultra Clean 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 Ultra Clean Holdings are associated (or correlated) with Sinopec Shanghai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinopec Shanghai Pet has no effect on the direction of Ultra Clean i.e., Ultra Clean and Sinopec Shanghai go up and down completely randomly.

Pair Corralation between Ultra Clean and Sinopec Shanghai

Assuming the 90 days horizon Ultra Clean is expected to generate 1.48 times less return on investment than Sinopec Shanghai. But when comparing it to its historical volatility, Ultra Clean Holdings is 1.84 times less risky than Sinopec Shanghai. It trades about 0.03 of its potential returns per unit of risk. Sinopec Shanghai Petrochemical is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  16.00  in Sinopec Shanghai Petrochemical on October 11, 2024 and sell it today you would lose (1.00) from holding Sinopec Shanghai Petrochemical or give up 6.25% of portfolio value over 90 days.

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

Ultra Clean Holdings  vs.  Sinopec Shanghai Petrochemical

Ultra Clean Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultra Clean Holdings 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.

Sinopec Shanghai Pet

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sinopec Shanghai Petrochemical are ranked lower than 5 (%) 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.

Pair Trading with Ultra Clean and Sinopec Shanghai

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

The idea behind Ultra Clean Holdings and Sinopec Shanghai Petrochemical 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.