Correlation Between Ningxia Building and Shanghai Ziyan

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

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

Diversification Opportunities for Ningxia Building and Shanghai Ziyan

0.8

Correlation Coefficient

Ningxia Building  Shanghai Ziyan

Very poor diversification

The 3 months correlation between Ningxia and Shanghai is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Ningxia Building Materials and Shanghai Ziyan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Ziyan Foods and Ningxia Building 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 Ningxia Building Materials are associated (or correlated) with Shanghai Ziyan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Ziyan Foods has no effect on the direction of Ningxia Building i.e., Ningxia Building and Shanghai Ziyan go up and down completely randomly.

Pair Corralation between Ningxia Building and Shanghai Ziyan

Assuming the 90 days trading horizon Ningxia Building Materials is expected to under-perform the Shanghai Ziyan. In addition to that, Ningxia Building is 1.42 times more volatile than Shanghai Ziyan Foods. It trades about -0.01 of its total potential returns per unit of risk. Shanghai Ziyan Foods is currently generating about 0.01 per unit of volatility. If you would invest  1,954  in Shanghai Ziyan Foods on September 15, 2024 and sell it today you would lose (40.00) from holding Shanghai Ziyan Foods or give up 2.05% of portfolio value over 90 days.

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

Ningxia Building Materials  vs.  Shanghai Ziyan Foods

Ningxia Building Mat

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ningxia Building Materials are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningxia Building sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Ziyan Foods

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Ziyan Foods are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Ziyan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ningxia Building and Shanghai Ziyan

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

The idea behind Ningxia Building Materials and Shanghai Ziyan Foods 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.