Correlation Between China Asset and Shanghai Shuixing

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

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

Diversification Opportunities for China Asset and Shanghai Shuixing

0.55

Correlation Coefficient

China Asset  Shanghai Shuixing

Very weak diversification

The 3 months correlation between China and Shanghai is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding China Asset Management and Shanghai Shuixing Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Shuixing Home and China Asset 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 Asset Management are associated (or correlated) with Shanghai Shuixing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Shuixing Home has no effect on the direction of China Asset i.e., China Asset and Shanghai Shuixing go up and down completely randomly.

Pair Corralation between China Asset and Shanghai Shuixing

Assuming the 90 days trading horizon China Asset Management is expected to generate 0.39 times more return on investment than Shanghai Shuixing. However, China Asset Management is 2.53 times less risky than Shanghai Shuixing. It trades about 0.41 of its potential returns per unit of risk. Shanghai Shuixing Home is currently generating about 0.05 per unit of risk. If you would invest  315.00  in China Asset Management on September 24, 2024 and sell it today you would earn a total of  36.00  from holding China Asset Management or generate 11.43% return on investment over 90 days.

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

China Asset Management  vs.  Shanghai Shuixing Home

China Asset Management

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Asset Management are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Asset may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shanghai Shuixing Home

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Shuixing Home are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Shuixing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Asset and Shanghai Shuixing

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

The idea behind China Asset Management and Shanghai Shuixing Home 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.