Correlation Between Shanghai Yanpu and Huizhou Speed

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

Diversification Opportunities for Shanghai Yanpu and Huizhou Speed

0.76

Correlation Coefficient

Shanghai Yanpu  Huizhou Speed

Poor diversification

The 3 months correlation between Shanghai and Huizhou is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Yanpu Metal and Huizhou Speed Wireless in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huizhou Speed Wireless 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 Huizhou Speed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huizhou Speed Wireless has no effect on the direction of Shanghai Yanpu i.e., Shanghai Yanpu and Huizhou Speed go up and down completely randomly.

Pair Corralation between Shanghai Yanpu and Huizhou Speed

Assuming the 90 days trading horizon Shanghai Yanpu is expected to generate 1.29 times less return on investment than Huizhou Speed. But when comparing it to its historical volatility, Shanghai Yanpu Metal is 2.0 times less risky than Huizhou Speed. It trades about 0.09 of its potential returns per unit of risk. Huizhou Speed Wireless is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,249  in Huizhou Speed Wireless on September 28, 2024 and sell it today you would earn a total of  147.00  from holding Huizhou Speed Wireless or generate 11.77% 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.  Huizhou Speed Wireless

Shanghai Yanpu Metal

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Yanpu Metal are ranked lower than 7 (%) 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.

Huizhou Speed Wireless

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Huizhou Speed Wireless are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Huizhou Speed sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Yanpu and Huizhou Speed

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

The idea behind Shanghai Yanpu Metal and Huizhou Speed Wireless 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.