Correlation Between Shanghai Broadband and Aofu Environmental

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

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

Diversification Opportunities for Shanghai Broadband and Aofu Environmental

0.73

Correlation Coefficient

Shanghai Broadband  Aofu Environmental

Poor diversification

The 3 months correlation between Shanghai and Aofu is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Broadband Technology and Aofu Environmental Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aofu Environmental and Shanghai Broadband 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 Broadband Technology are associated (or correlated) with Aofu Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aofu Environmental has no effect on the direction of Shanghai Broadband i.e., Shanghai Broadband and Aofu Environmental go up and down completely randomly.

Pair Corralation between Shanghai Broadband and Aofu Environmental

Assuming the 90 days trading horizon Shanghai Broadband Technology is expected to generate 0.85 times more return on investment than Aofu Environmental. However, Shanghai Broadband Technology is 1.17 times less risky than Aofu Environmental. It trades about 0.13 of its potential returns per unit of risk. Aofu Environmental Technology is currently generating about 0.05 per unit of risk. If you would invest  289.00  in Shanghai Broadband Technology on September 30, 2024 and sell it today you would earn a total of  66.00  from holding Shanghai Broadband Technology or generate 22.84% return on investment over 90 days.

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

Shanghai Broadband Technology  vs.  Aofu Environmental Technology

Shanghai Broadband

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Broadband Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Broadband sustained solid returns over the last few months and may actually be approaching a breakup point.

Aofu Environmental

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aofu Environmental Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aofu Environmental may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Shanghai Broadband and Aofu Environmental

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

The idea behind Shanghai Broadband Technology and Aofu Environmental Technology 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.