Correlation Between Shandong Polymer and Shenzhen New

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

By analyzing existing cross correlation between Shandong Polymer Biochemicals and Shenzhen New Nanshan, you can compare the effects of market volatilities on Shandong Polymer and Shenzhen New 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 Shandong Polymer with a short position of Shenzhen New. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Polymer and Shenzhen New.

Diversification Opportunities for Shandong Polymer and Shenzhen New

0.92

Correlation Coefficient

Shandong Polymer  Shenzhen New

Almost no diversification

The 3 months correlation between Shandong and Shenzhen is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Polymer Biochemicals and Shenzhen New Nanshan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen New Nanshan and Shandong Polymer 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 Shandong Polymer Biochemicals are associated (or correlated) with Shenzhen New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen New Nanshan has no effect on the direction of Shandong Polymer i.e., Shandong Polymer and Shenzhen New go up and down completely randomly.

Pair Corralation between Shandong Polymer and Shenzhen New

Assuming the 90 days trading horizon Shandong Polymer is expected to generate 1.29 times less return on investment than Shenzhen New. But when comparing it to its historical volatility, Shandong Polymer Biochemicals is 1.08 times less risky than Shenzhen New. It trades about 0.2 of its potential returns per unit of risk. Shenzhen New Nanshan is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  196.00  in Shenzhen New Nanshan on September 13, 2024 and sell it today you would earn a total of  111.00  from holding Shenzhen New Nanshan or generate 56.63% return on investment over 90 days.

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

Shandong Polymer Biochemicals  vs.  Shenzhen New Nanshan

Shandong Polymer Bio

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Polymer Biochemicals are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Polymer sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen New Nanshan

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen New Nanshan are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen New sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Polymer and Shenzhen New

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

The idea behind Shandong Polymer Biochemicals and Shenzhen New Nanshan 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.