Correlation Between China Construction and Shanghai Pharmaceuticals
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By analyzing existing cross correlation between China Construction Bank and Shanghai Pharmaceuticals Holding, you can compare the effects of market volatilities on China Construction and Shanghai Pharmaceuticals 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 China Construction with a short position of Shanghai Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Construction and Shanghai Pharmaceuticals.
Diversification Opportunities for China Construction and Shanghai Pharmaceuticals
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between China and Shanghai is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Shanghai Pharmaceuticals Holdi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Pharmaceuticals and China Construction 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 China Construction Bank are associated (or correlated) with Shanghai Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Pharmaceuticals has no effect on the direction of China Construction i.e., China Construction and Shanghai Pharmaceuticals go up and down completely randomly.
Pair Corralation between China Construction and Shanghai Pharmaceuticals
Assuming the 90 days trading horizon China Construction Bank is expected to generate 1.56 times more return on investment than Shanghai Pharmaceuticals. However, China Construction is 1.56 times more volatile than Shanghai Pharmaceuticals Holding. It trades about -0.01 of its potential returns per unit of risk. Shanghai Pharmaceuticals Holding is currently generating about -0.11 per unit of risk. If you would invest 859.00 in China Construction Bank on November 2, 2024 and sell it today you would lose (5.00) from holding China Construction Bank or give up 0.58% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Construction Bank vs. Shanghai Pharmaceuticals Holdi
Performance |
| Timeline |
| China Construction Bank |
| Shanghai Pharmaceuticals |
China Construction and Shanghai Pharmaceuticals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Construction and Shanghai Pharmaceuticals
The main advantage of trading using opposite China Construction and Shanghai Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Construction position performs unexpectedly, Shanghai Pharmaceuticals 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 Shanghai Pharmaceuticals will offset losses from the drop in Shanghai Pharmaceuticals' long position.The idea behind China Construction Bank and Shanghai Pharmaceuticals Holding 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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