Correlation Between Shanghai Oriental and Xiamen Insight

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

By analyzing existing cross correlation between Shanghai Oriental Pearl and Xiamen Insight Investment, you can compare the effects of market volatilities on Shanghai Oriental and Xiamen Insight 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 Oriental with a short position of Xiamen Insight. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Oriental and Xiamen Insight.

Diversification Opportunities for Shanghai Oriental and Xiamen Insight

-0.55

Correlation Coefficient

Shanghai Oriental  Xiamen Insight

Excellent diversification

The 3 months correlation between Shanghai and Xiamen is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Oriental Pearl and Xiamen Insight Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Insight Investment and Shanghai Oriental 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 Oriental Pearl are associated (or correlated) with Xiamen Insight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Insight Investment has no effect on the direction of Shanghai Oriental i.e., Shanghai Oriental and Xiamen Insight go up and down completely randomly.

Pair Corralation between Shanghai Oriental and Xiamen Insight

Assuming the 90 days trading horizon Shanghai Oriental Pearl is expected to generate 0.7 times more return on investment than Xiamen Insight. However, Shanghai Oriental Pearl is 1.43 times less risky than Xiamen Insight. It trades about 0.05 of its potential returns per unit of risk. Xiamen Insight Investment is currently generating about -0.16 per unit of risk. If you would invest  751.00  in Shanghai Oriental Pearl on September 28, 2024 and sell it today you would earn a total of  39.00  from holding Shanghai Oriental Pearl or generate 5.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Shanghai Oriental Pearl  vs.  Xiamen Insight Investment

Shanghai Oriental Pearl

Risk-Adjusted Performance

3 of 100

Insignificant

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

Xiamen Insight Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xiamen Insight Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shanghai Oriental and Xiamen Insight

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

The idea behind Shanghai Oriental Pearl and Xiamen Insight Investment 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.