Correlation Between Shanghai CEO and China Merchants

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

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

Diversification Opportunities for Shanghai CEO and China Merchants

0.91

Correlation Coefficient

Shanghai CEO  China Merchants

Almost no diversification

The 3 months correlation between Shanghai and China is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai CEO Environmental and China Merchants Shekou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Shekou and Shanghai CEO 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 CEO Environmental are associated (or correlated) with China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Shekou has no effect on the direction of Shanghai CEO i.e., Shanghai CEO and China Merchants go up and down completely randomly.

Pair Corralation between Shanghai CEO and China Merchants

Assuming the 90 days trading horizon Shanghai CEO is expected to generate 1.01 times less return on investment than China Merchants. But when comparing it to its historical volatility, Shanghai CEO Environmental is 1.08 times less risky than China Merchants. It trades about 0.16 of its potential returns per unit of risk. China Merchants Shekou is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  903.00  in China Merchants Shekou on September 5, 2024 and sell it today you would earn a total of  282.00  from holding China Merchants Shekou or generate 31.23% return on investment over 90 days.

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

Shanghai CEO Environmental  vs.  China Merchants Shekou

Shanghai CEO Environ

Risk-Adjusted Performance

12 of 100

Good

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

China Merchants Shekou

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Shanghai CEO and China Merchants

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

The idea behind Shanghai CEO Environmental and China Merchants Shekou 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.