Correlation Between Shanghai Pudong and SUNSEA Telecommunicatio

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

By analyzing existing cross correlation between Shanghai Pudong Development and SUNSEA Telecommunications Co, you can compare the effects of market volatilities on Shanghai Pudong and SUNSEA Telecommunicatio 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 Shanghai Pudong with a short position of SUNSEA Telecommunicatio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Pudong and SUNSEA Telecommunicatio.

Diversification Opportunities for Shanghai Pudong and SUNSEA Telecommunicatio

0.72

Correlation Coefficient

Shanghai Pudong  SUNSEA Telecommunicatio

Poor diversification

The 3 months correlation between Shanghai and SUNSEA is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Pudong Development and SUNSEA Telecommunications Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SUNSEA Telecommunicatio and Shanghai Pudong 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 Shanghai Pudong Development are associated (or correlated) with SUNSEA Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SUNSEA Telecommunicatio has no effect on the direction of Shanghai Pudong i.e., Shanghai Pudong and SUNSEA Telecommunicatio go up and down completely randomly.

Pair Corralation between Shanghai Pudong and SUNSEA Telecommunicatio

Assuming the 90 days trading horizon Shanghai Pudong Development is expected to generate 0.46 times more return on investment than SUNSEA Telecommunicatio. However, Shanghai Pudong Development is 2.16 times less risky than SUNSEA Telecommunicatio. It trades about -0.14 of its potential returns per unit of risk. SUNSEA Telecommunications Co is currently generating about -0.15 per unit of risk. If you would invest  994.00  in Shanghai Pudong Development on August 31, 2024 and sell it today you would lose (50.00) from holding Shanghai Pudong Development or give up 5.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Shanghai Pudong Development  vs.  SUNSEA Telecommunications Co

Shanghai Pudong Deve

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Pudong Development are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Pudong sustained solid returns over the last few months and may actually be approaching a breakup point.

SUNSEA Telecommunicatio

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Shanghai Pudong and SUNSEA Telecommunicatio

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

The idea behind Shanghai Pudong Development and SUNSEA Telecommunications Co 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.