Correlation Between Sinopec Shanghai and Valvoline

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

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

Diversification Opportunities for Sinopec Shanghai and Valvoline

-0.11

Correlation Coefficient

Sinopec Shanghai  Valvoline

Good diversification

The 3 months correlation between Sinopec and Valvoline is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Sinopec Shanghai Petrochemical and Valvoline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valvoline and Sinopec Shanghai 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 Sinopec Shanghai Petrochemical are associated (or correlated) with Valvoline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valvoline has no effect on the direction of Sinopec Shanghai i.e., Sinopec Shanghai and Valvoline go up and down completely randomly.

Pair Corralation between Sinopec Shanghai and Valvoline

Assuming the 90 days horizon Sinopec Shanghai Petrochemical is expected to generate 2.17 times more return on investment than Valvoline. However, Sinopec Shanghai is 2.17 times more volatile than Valvoline. It trades about 0.15 of its potential returns per unit of risk. Valvoline is currently generating about -0.18 per unit of risk. If you would invest  14.00  in Sinopec Shanghai Petrochemical on September 17, 2024 and sell it today you would earn a total of  2.00  from holding Sinopec Shanghai Petrochemical or generate 14.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Sinopec Shanghai Petrochemical  vs.  Valvoline

Sinopec Shanghai Pet

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sinopec Shanghai Petrochemical are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking indicators, Sinopec Shanghai reported solid returns over the last few months and may actually be approaching a breakup point.

Valvoline

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valvoline has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Valvoline is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Sinopec Shanghai and Valvoline

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

The idea behind Sinopec Shanghai Petrochemical and Valvoline 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.