Correlation Between Yamaha and Shanghai Pharmaceuticals

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

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

Diversification Opportunities for Yamaha and Shanghai Pharmaceuticals

-0.54

Correlation Coefficient

Yamaha  Shanghai Pharmaceuticals

Excellent diversification

The 3 months correlation between Yamaha and Shanghai is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Yamaha and Shanghai Pharmaceuticals Holdi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Pharmaceuticals and Yamaha 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 Yamaha are associated (or correlated) with Shanghai Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Pharmaceuticals has no effect on the direction of Yamaha i.e., Yamaha and Shanghai Pharmaceuticals go up and down completely randomly.

Pair Corralation between Yamaha and Shanghai Pharmaceuticals

Assuming the 90 days horizon Yamaha is expected to generate 3.49 times less return on investment than Shanghai Pharmaceuticals. In addition to that, Yamaha is 1.11 times more volatile than Shanghai Pharmaceuticals Holding. It trades about 0.05 of its total potential returns per unit of risk. Shanghai Pharmaceuticals Holding is currently generating about 0.2 per unit of volatility. If you would invest  147.00  in Shanghai Pharmaceuticals Holding on September 23, 2024 and sell it today you would earn a total of  11.00  from holding Shanghai Pharmaceuticals Holding or generate 7.48% return on investment over 90 days.

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

Yamaha  vs.  Shanghai Pharmaceuticals Holdi

Yamaha

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yamaha has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Yamaha is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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.

Pair Trading with Yamaha and Shanghai Pharmaceuticals

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

The idea behind Yamaha and Shanghai Pharmaceuticals Holding 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.