Correlation Between China Securities and Shandong Homey

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Can any of the company-specific risk be diversified away by investing in both China Securities and Shandong Homey 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 China Securities and Shandong Homey into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Securities 800 and Shandong Homey Aquatic, you can compare the effects of market volatilities on China Securities and Shandong Homey 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 China Securities with a short position of Shandong Homey. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Securities and Shandong Homey.

Diversification Opportunities for China Securities and Shandong Homey

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between China and Shandong is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding China Securities 800 and Shandong Homey Aquatic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Homey Aquatic and China Securities 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 China Securities 800 are associated (or correlated) with Shandong Homey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Homey Aquatic has no effect on the direction of China Securities i.e., China Securities and Shandong Homey go up and down completely randomly.
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Pair Corralation between China Securities and Shandong Homey

Assuming the 90 days trading horizon China Securities is expected to generate 2.63 times less return on investment than Shandong Homey. But when comparing it to its historical volatility, China Securities 800 is 2.0 times less risky than Shandong Homey. It trades about 0.16 of its potential returns per unit of risk. Shandong Homey Aquatic is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  156.00  in Shandong Homey Aquatic on September 5, 2024 and sell it today you would earn a total of  105.00  from holding Shandong Homey Aquatic or generate 67.31% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

China Securities 800  vs.  Shandong Homey Aquatic

 Performance 
       Timeline  

China Securities and Shandong Homey Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Securities and Shandong Homey

The main advantage of trading using opposite China Securities and Shandong Homey positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Securities position performs unexpectedly, Shandong Homey 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 Shandong Homey will offset losses from the drop in Shandong Homey's long position.
The idea behind China Securities 800 and Shandong Homey Aquatic 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.

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