Correlation Between Shanghai Electric and Barnes

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

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

Diversification Opportunities for Shanghai Electric and Barnes

0.73

Correlation Coefficient

Shanghai Electric  Barnes

Poor diversification

The 3 months correlation between Shanghai and Barnes is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Electric Group and Barnes Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barnes Group and Shanghai Electric 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 Electric Group are associated (or correlated) with Barnes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barnes Group has no effect on the direction of Shanghai Electric i.e., Shanghai Electric and Barnes go up and down completely randomly.

Pair Corralation between Shanghai Electric and Barnes

Assuming the 90 days horizon Shanghai Electric Group is expected to under-perform the Barnes. In addition to that, Shanghai Electric is 48.54 times more volatile than Barnes Group. It trades about -0.04 of its total potential returns per unit of risk. Barnes Group is currently generating about 0.35 per unit of volatility. If you would invest  4,665  in Barnes Group on September 13, 2024 and sell it today you would earn a total of  39.00  from holding Barnes Group or generate 0.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Shanghai Electric Group  vs.  Barnes Group

Shanghai Electric

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Electric Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Shanghai Electric showed solid returns over the last few months and may actually be approaching a breakup point.

Barnes Group

Risk-Adjusted Performance

14 of 100

Solid

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

Pair Trading with Shanghai Electric and Barnes

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

The idea behind Shanghai Electric Group and Barnes Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.