Correlation Between Shanghai Rongtai and PKU HealthCare

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

By analyzing existing cross correlation between Shanghai Rongtai Health and PKU HealthCare Corp, you can compare the effects of market volatilities on Shanghai Rongtai and PKU HealthCare 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 Rongtai with a short position of PKU HealthCare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Rongtai and PKU HealthCare.

Diversification Opportunities for Shanghai Rongtai and PKU HealthCare

0.92

Correlation Coefficient

Shanghai Rongtai  PKU HealthCare

Almost no diversification

The 3 months correlation between Shanghai and PKU is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Rongtai Health and PKU HealthCare Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PKU HealthCare Corp and Shanghai Rongtai 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 Rongtai Health are associated (or correlated) with PKU HealthCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PKU HealthCare Corp has no effect on the direction of Shanghai Rongtai i.e., Shanghai Rongtai and PKU HealthCare go up and down completely randomly.

Pair Corralation between Shanghai Rongtai and PKU HealthCare

Assuming the 90 days trading horizon Shanghai Rongtai is expected to generate 1.27 times less return on investment than PKU HealthCare. But when comparing it to its historical volatility, Shanghai Rongtai Health is 1.11 times less risky than PKU HealthCare. It trades about 0.13 of its potential returns per unit of risk. PKU HealthCare Corp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  531.00  in PKU HealthCare Corp on September 24, 2024 and sell it today you would earn a total of  149.00  from holding PKU HealthCare Corp or generate 28.06% return on investment over 90 days.

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

Shanghai Rongtai Health  vs.  PKU HealthCare Corp

Shanghai Rongtai Health

Risk-Adjusted Performance

10 of 100

Good

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

PKU HealthCare Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PKU HealthCare Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PKU HealthCare sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Rongtai and PKU HealthCare

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

The idea behind Shanghai Rongtai Health and PKU HealthCare Corp 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.