Correlation Between Shanghai Action and Chengdu B

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

By analyzing existing cross correlation between Shanghai Action Education and Chengdu B ray Media, you can compare the effects of market volatilities on Shanghai Action and Chengdu B 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 Action with a short position of Chengdu B. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Action and Chengdu B.

Diversification Opportunities for Shanghai Action and Chengdu B

0.1

Correlation Coefficient

Shanghai Action  Chengdu B

Average diversification

The 3 months correlation between Shanghai and Chengdu is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Action Education and Chengdu B ray Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu B ray and Shanghai Action 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 Action Education are associated (or correlated) with Chengdu B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu B ray has no effect on the direction of Shanghai Action i.e., Shanghai Action and Chengdu B go up and down completely randomly.

Pair Corralation between Shanghai Action and Chengdu B

Assuming the 90 days trading horizon Shanghai Action Education is expected to generate 0.91 times more return on investment than Chengdu B. However, Shanghai Action Education is 1.09 times less risky than Chengdu B. It trades about 0.03 of its potential returns per unit of risk. Chengdu B ray Media is currently generating about 0.01 per unit of risk. If you would invest  2,554  in Shanghai Action Education on September 27, 2024 and sell it today you would earn a total of  806.00  from holding Shanghai Action Education or generate 31.56% return on investment over 90 days.

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

Shanghai Action Education  vs.  Chengdu B ray Media

Shanghai Action Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Action Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Chengdu B ray

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Shanghai Action and Chengdu B

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

The idea behind Shanghai Action Education and Chengdu B ray Media 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.

Check out your portfolio center.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.