Correlation Between Shanghai Ziyan and Guangdong Wens

Can any of the company-specific risk be diversified away by investing in both Shanghai Ziyan and Guangdong Wens 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 Guangdong Wens 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 Guangdong Wens Foodstuff, you can compare the effects of market volatilities on Shanghai Ziyan and Guangdong Wens 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 Guangdong Wens. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Ziyan and Guangdong Wens.

Diversification Opportunities for Shanghai Ziyan and Guangdong Wens

0.61

Correlation Coefficient

Shanghai Ziyan  Guangdong Wens

Poor diversification

The 3 months correlation between Shanghai and Guangdong is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Ziyan Foods and Guangdong Wens Foodstuff in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Wens Foodstuff 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 Guangdong Wens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Wens Foodstuff has no effect on the direction of Shanghai Ziyan i.e., Shanghai Ziyan and Guangdong Wens go up and down completely randomly.

Pair Corralation between Shanghai Ziyan and Guangdong Wens

Assuming the 90 days trading horizon Shanghai Ziyan Foods is expected to generate 0.91 times more return on investment than Guangdong Wens. However, Shanghai Ziyan Foods is 1.1 times less risky than Guangdong Wens. It trades about 0.13 of its potential returns per unit of risk. Guangdong Wens Foodstuff is currently generating about 0.04 per unit of risk. If you would invest  1,544  in Shanghai Ziyan Foods on September 4, 2024 and sell it today you would earn a total of  330.00  from holding Shanghai Ziyan Foods or generate 21.37% return on investment over 90 days.

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

Shanghai Ziyan Foods  vs.  Guangdong Wens Foodstuff

Shanghai Ziyan Foods

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Ziyan Foods are ranked lower than 10 (%) 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.

Guangdong Wens Foodstuff

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Shanghai Ziyan and Guangdong Wens

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

The idea behind Shanghai Ziyan Foods and Guangdong Wens Foodstuff 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.