Correlation Between Sinosteel Luonai and Shanghai Rongtai

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

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

Diversification Opportunities for Sinosteel Luonai and Shanghai Rongtai

0.94

Correlation Coefficient

Sinosteel Luonai  Shanghai Rongtai

Almost no diversification

The 3 months correlation between Sinosteel and Shanghai is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Sinosteel Luonai Materials and Shanghai Rongtai Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Rongtai Health and Sinosteel Luonai 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 Sinosteel Luonai Materials are associated (or correlated) with Shanghai Rongtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Rongtai Health has no effect on the direction of Sinosteel Luonai i.e., Sinosteel Luonai and Shanghai Rongtai go up and down completely randomly.

Pair Corralation between Sinosteel Luonai and Shanghai Rongtai

Assuming the 90 days trading horizon Sinosteel Luonai Materials is expected to generate 1.45 times more return on investment than Shanghai Rongtai. However, Sinosteel Luonai is 1.45 times more volatile than Shanghai Rongtai Health. It trades about 0.19 of its potential returns per unit of risk. Shanghai Rongtai Health is currently generating about 0.19 per unit of risk. If you would invest  303.00  in Sinosteel Luonai Materials on September 4, 2024 and sell it today you would earn a total of  133.00  from holding Sinosteel Luonai Materials or generate 43.89% return on investment over 90 days.

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

Sinosteel Luonai Materials  vs.  Shanghai Rongtai Health

Sinosteel Luonai Mat

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sinosteel Luonai Materials are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinosteel Luonai sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Sinosteel Luonai and Shanghai Rongtai

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

The idea behind Sinosteel Luonai Materials and Shanghai Rongtai Health 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.