Correlation Between China Northern and Shanghai CEO

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

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

Diversification Opportunities for China Northern and Shanghai CEO

0.9

Correlation Coefficient

China Northern  Shanghai CEO

Almost no diversification

The 3 months correlation between China and Shanghai is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding China Northern Rare and Shanghai CEO Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai CEO Environ and China Northern 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 Northern Rare are associated (or correlated) with Shanghai CEO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai CEO Environ has no effect on the direction of China Northern i.e., China Northern and Shanghai CEO go up and down completely randomly.

Pair Corralation between China Northern and Shanghai CEO

Assuming the 90 days trading horizon China Northern Rare is expected to generate 1.1 times more return on investment than Shanghai CEO. However, China Northern is 1.1 times more volatile than Shanghai CEO Environmental. It trades about 0.2 of its potential returns per unit of risk. Shanghai CEO Environmental is currently generating about 0.21 per unit of risk. If you would invest  1,608  in China Northern Rare on September 14, 2024 and sell it today you would earn a total of  688.00  from holding China Northern Rare or generate 42.79% return on investment over 90 days.

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

China Northern Rare  vs.  Shanghai CEO Environmental

China Northern Rare

Risk-Adjusted Performance

15 of 100

Good

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

Shanghai CEO Environ

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai CEO Environmental are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai CEO sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Northern and Shanghai CEO

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

The idea behind China Northern Rare and Shanghai CEO Environmental 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.