Correlation Between Shanghai Ziyan and Ningxia Younglight

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

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

Diversification Opportunities for Shanghai Ziyan and Ningxia Younglight

0.39

Correlation Coefficient

Shanghai Ziyan  Ningxia Younglight

Weak diversification

The 3 months correlation between Shanghai and Ningxia is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Ziyan Foods and Ningxia Younglight Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningxia Younglight and Shanghai Ziyan 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 Ziyan Foods are associated (or correlated) with Ningxia Younglight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningxia Younglight has no effect on the direction of Shanghai Ziyan i.e., Shanghai Ziyan and Ningxia Younglight go up and down completely randomly.

Pair Corralation between Shanghai Ziyan and Ningxia Younglight

Assuming the 90 days trading horizon Shanghai Ziyan is expected to generate 4.88 times less return on investment than Ningxia Younglight. But when comparing it to its historical volatility, Shanghai Ziyan Foods is 1.31 times less risky than Ningxia Younglight. It trades about 0.02 of its potential returns per unit of risk. Ningxia Younglight Chemicals is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  700.00  in Ningxia Younglight Chemicals on September 30, 2024 and sell it today you would earn a total of  116.00  from holding Ningxia Younglight Chemicals or generate 16.57% return on investment over 90 days.

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

Shanghai Ziyan Foods  vs.  Ningxia Younglight Chemicals

Shanghai Ziyan Foods

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Ziyan Foods are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shanghai Ziyan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ningxia Younglight

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ningxia Younglight Chemicals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningxia Younglight sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Ziyan and Ningxia Younglight

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

The idea behind Shanghai Ziyan Foods and Ningxia Younglight Chemicals 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.