Correlation Between Shanghai Lingyun and ADAMA

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

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

Diversification Opportunities for Shanghai Lingyun and ADAMA

0.91

Correlation Coefficient

Shanghai Lingyun  ADAMA

Almost no diversification

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

Pair Corralation between Shanghai Lingyun and ADAMA

Assuming the 90 days trading horizon Shanghai Lingyun is expected to generate 1.02 times less return on investment than ADAMA. In addition to that, Shanghai Lingyun is 1.12 times more volatile than ADAMA. It trades about 0.17 of its total potential returns per unit of risk. ADAMA is currently generating about 0.19 per unit of volatility. If you would invest  432.00  in ADAMA on September 1, 2024 and sell it today you would earn a total of  236.00  from holding ADAMA or generate 54.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.31%
Values	Daily Returns

Shanghai Lingyun Industries  vs.  ADAMA

Shanghai Lingyun Ind

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Lingyun Industries are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Lingyun sustained solid returns over the last few months and may actually be approaching a breakup point.

ADAMA

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ADAMA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ADAMA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Lingyun and ADAMA

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

The idea behind Shanghai Lingyun Industries and ADAMA 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.