Correlation Between Shandong Homey and New China

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

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

Diversification Opportunities for Shandong Homey and New China

0.76

Correlation Coefficient

Shandong Homey  New China

Poor diversification

The 3 months correlation between Shandong and New is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Homey Aquatic and New China Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New China Life and Shandong Homey 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 Homey Aquatic are associated (or correlated) with New China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New China Life has no effect on the direction of Shandong Homey i.e., Shandong Homey and New China go up and down completely randomly.

Pair Corralation between Shandong Homey and New China

Assuming the 90 days trading horizon Shandong Homey Aquatic is expected to generate 1.24 times more return on investment than New China. However, Shandong Homey is 1.24 times more volatile than New China Life. It trades about 0.25 of its potential returns per unit of risk. New China Life is currently generating about 0.21 per unit of risk. If you would invest  153.00  in Shandong Homey Aquatic on September 17, 2024 and sell it today you would earn a total of  133.00  from holding Shandong Homey Aquatic or generate 86.93% return on investment over 90 days.

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

Shandong Homey Aquatic  vs.  New China Life

Shandong Homey Aquatic

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Homey Aquatic are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Homey sustained solid returns over the last few months and may actually be approaching a breakup point.

New China Life

Risk-Adjusted Performance

16 of 100

Solid

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

Pair Trading with Shandong Homey and New China

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

The idea behind Shandong Homey Aquatic and New China Life 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.