Correlation Between Shanghai Yanpu and China Great

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

By analyzing existing cross correlation between Shanghai Yanpu Metal and China Great Wall, you can compare the effects of market volatilities on Shanghai Yanpu and China Great 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 Yanpu with a short position of China Great. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Yanpu and China Great.

Diversification Opportunities for Shanghai Yanpu and China Great

0.78

Correlation Coefficient

Shanghai Yanpu  China Great

Poor diversification

The 3 months correlation between Shanghai and China is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Yanpu Metal and China Great Wall in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Great Wall and Shanghai Yanpu 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 Yanpu Metal are associated (or correlated) with China Great. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Great Wall has no effect on the direction of Shanghai Yanpu i.e., Shanghai Yanpu and China Great go up and down completely randomly.

Pair Corralation between Shanghai Yanpu and China Great

Assuming the 90 days trading horizon Shanghai Yanpu Metal is expected to generate 1.1 times more return on investment than China Great. However, Shanghai Yanpu is 1.1 times more volatile than China Great Wall. It trades about 0.13 of its potential returns per unit of risk. China Great Wall is currently generating about 0.02 per unit of risk. If you would invest  2,950  in Shanghai Yanpu Metal on September 27, 2024 and sell it today you would earn a total of  716.00  from holding Shanghai Yanpu Metal or generate 24.27% return on investment over 90 days.

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

Shanghai Yanpu Metal  vs.  China Great Wall

Shanghai Yanpu Metal

Risk-Adjusted Performance

10 of 100

Good

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

China Great Wall

Risk-Adjusted Performance

1 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Great Wall are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Great is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shanghai Yanpu and China Great

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

The idea behind Shanghai Yanpu Metal and China Great Wall 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.