Correlation Between Shanghai Rongtai and Bomin Electronics

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

Diversification Opportunities for Shanghai Rongtai and Bomin Electronics

0.91

Correlation Coefficient

Shanghai Rongtai  Bomin Electronics

Almost no diversification

The 3 months correlation between Shanghai and Bomin is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Rongtai Health and Bomin Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bomin Electronics 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 Bomin Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bomin Electronics has no effect on the direction of Shanghai Rongtai i.e., Shanghai Rongtai and Bomin Electronics go up and down completely randomly.

Pair Corralation between Shanghai Rongtai and Bomin Electronics

Assuming the 90 days trading horizon Shanghai Rongtai Health is expected to generate 0.81 times more return on investment than Bomin Electronics. However, Shanghai Rongtai Health is 1.24 times less risky than Bomin Electronics. It trades about 0.19 of its potential returns per unit of risk. Bomin Electronics Co is currently generating about 0.14 per unit of risk. If you would invest  1,183  in Shanghai Rongtai Health on September 4, 2024 and sell it today you would earn a total of  351.00  from holding Shanghai Rongtai Health or generate 29.67% 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.  Bomin Electronics Co

Shanghai Rongtai Health

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rongtai Health are ranked lower than 14 (%) 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.

Bomin Electronics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bomin Electronics Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bomin Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Rongtai and Bomin Electronics

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

The idea behind Shanghai Rongtai Health and Bomin Electronics Co 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.