Correlation Between Shanghai OPM and New Trend

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

By analyzing existing cross correlation between Shanghai OPM Biosciences and New Trend International, you can compare the effects of market volatilities on Shanghai OPM and New Trend 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 OPM with a short position of New Trend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai OPM and New Trend.

Diversification Opportunities for Shanghai OPM and New Trend

0.7

Correlation Coefficient

Shanghai OPM  New Trend

Poor diversification

The 3 months correlation between Shanghai and New is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai OPM Biosciences and New Trend International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Trend International and Shanghai OPM 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 OPM Biosciences are associated (or correlated) with New Trend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Trend International has no effect on the direction of Shanghai OPM i.e., Shanghai OPM and New Trend go up and down completely randomly.

Pair Corralation between Shanghai OPM and New Trend

Assuming the 90 days trading horizon Shanghai OPM Biosciences is expected to generate 1.03 times more return on investment than New Trend. However, Shanghai OPM is 1.03 times more volatile than New Trend International. It trades about 0.16 of its potential returns per unit of risk. New Trend International is currently generating about 0.13 per unit of risk. If you would invest  2,707  in Shanghai OPM Biosciences on September 18, 2024 and sell it today you would earn a total of  1,373  from holding Shanghai OPM Biosciences or generate 50.72% return on investment over 90 days.

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

Shanghai OPM Biosciences  vs.  New Trend International

Shanghai OPM Biosciences

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai OPM Biosciences are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai OPM sustained solid returns over the last few months and may actually be approaching a breakup point.

New Trend International

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Shanghai OPM and New Trend

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

The idea behind Shanghai OPM Biosciences and New Trend International 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.