Correlation Between Shanghai Lingyun and Zhejiang Qianjiang

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

Diversification Opportunities for Shanghai Lingyun and Zhejiang Qianjiang

0.82

Correlation Coefficient

Shanghai Lingyun  Zhejiang Qianjiang

Very poor diversification

The 3 months correlation between Shanghai and Zhejiang is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Lingyun Industries and Zhejiang Qianjiang Motorcycle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Qianjiang 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 Zhejiang Qianjiang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Qianjiang has no effect on the direction of Shanghai Lingyun i.e., Shanghai Lingyun and Zhejiang Qianjiang go up and down completely randomly.

Pair Corralation between Shanghai Lingyun and Zhejiang Qianjiang

Assuming the 90 days trading horizon Shanghai Lingyun Industries is expected to generate 1.5 times more return on investment than Zhejiang Qianjiang. However, Shanghai Lingyun is 1.5 times more volatile than Zhejiang Qianjiang Motorcycle. It trades about 0.15 of its potential returns per unit of risk. Zhejiang Qianjiang Motorcycle is currently generating about 0.03 per unit of risk. If you would invest  26.00  in Shanghai Lingyun Industries on August 31, 2024 and sell it today you would earn a total of  11.00  from holding Shanghai Lingyun Industries or generate 42.31% return on investment over 90 days.

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

Shanghai Lingyun Industries  vs.  Zhejiang Qianjiang Motorcycle

Shanghai Lingyun Ind

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Lingyun Industries are ranked lower than 12 (%) 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.

Zhejiang Qianjiang

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Qianjiang Motorcycle are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Zhejiang Qianjiang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shanghai Lingyun and Zhejiang Qianjiang

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

The idea behind Shanghai Lingyun Industries and Zhejiang Qianjiang Motorcycle 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.