Correlation Between Advanced Technology and Shanghai Broadband

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

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

Diversification Opportunities for Advanced Technology and Shanghai Broadband

0.89

Correlation Coefficient

Advanced Technology  Shanghai Broadband

Very poor diversification

The 3 months correlation between Advanced and Shanghai is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Technology Materials and Shanghai Broadband Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Broadband and Advanced Technology 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 Advanced Technology Materials are associated (or correlated) with Shanghai Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Broadband has no effect on the direction of Advanced Technology i.e., Advanced Technology and Shanghai Broadband go up and down completely randomly.

Pair Corralation between Advanced Technology and Shanghai Broadband

Assuming the 90 days trading horizon Advanced Technology Materials is expected to generate 0.94 times more return on investment than Shanghai Broadband. However, Advanced Technology Materials is 1.06 times less risky than Shanghai Broadband. It trades about 0.04 of its potential returns per unit of risk. Shanghai Broadband Technology is currently generating about -0.01 per unit of risk. If you would invest  800.00  in Advanced Technology Materials on September 28, 2024 and sell it today you would earn a total of  336.00  from holding Advanced Technology Materials or generate 42.0% return on investment over 90 days.

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

Advanced Technology Materials  vs.  Shanghai Broadband Technology

Advanced Technology

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Technology Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Advanced Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Broadband

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Broadband Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Broadband sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advanced Technology and Shanghai Broadband

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

The idea behind Advanced Technology Materials and Shanghai Broadband Technology 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.