Correlation Between Shanghai Shuixing and Inner Mongolia

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

By analyzing existing cross correlation between Shanghai Shuixing Home and Inner Mongolia Junzheng, you can compare the effects of market volatilities on Shanghai Shuixing and Inner Mongolia 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 Shuixing with a short position of Inner Mongolia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Shuixing and Inner Mongolia.

Diversification Opportunities for Shanghai Shuixing and Inner Mongolia

0.73

Correlation Coefficient

Shanghai Shuixing  Inner Mongolia

Poor diversification

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

Pair Corralation between Shanghai Shuixing and Inner Mongolia

Assuming the 90 days trading horizon Shanghai Shuixing Home is expected to generate 0.96 times more return on investment than Inner Mongolia. However, Shanghai Shuixing Home is 1.04 times less risky than Inner Mongolia. It trades about 0.04 of its potential returns per unit of risk. Inner Mongolia Junzheng is currently generating about 0.03 per unit of risk. If you would invest  1,278  in Shanghai Shuixing Home on September 30, 2024 and sell it today you would earn a total of  378.00  from holding Shanghai Shuixing Home or generate 29.58% return on investment over 90 days.

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

Shanghai Shuixing Home  vs.  Inner Mongolia Junzheng

Shanghai Shuixing Home

Risk-Adjusted Performance

6 of 100

Modest

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

Inner Mongolia Junzheng

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Shanghai Shuixing and Inner Mongolia

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

The idea behind Shanghai Shuixing Home and Inner Mongolia Junzheng 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.