Correlation Between Shuhua Sports and Sichuan Teway

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Can any of the company-specific risk be diversified away by investing in both Shuhua Sports and Sichuan Teway 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 Shuhua Sports and Sichuan Teway into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shuhua Sports Co and Sichuan Teway Food, you can compare the effects of market volatilities on Shuhua Sports and Sichuan Teway 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 Shuhua Sports with a short position of Sichuan Teway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shuhua Sports and Sichuan Teway.

Diversification Opportunities for Shuhua Sports and Sichuan Teway

-0.05
  Correlation Coefficient

Good diversification

The 3 months correlation between Shuhua and Sichuan is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Shuhua Sports Co and Sichuan Teway Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Teway Food and Shuhua Sports 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 Shuhua Sports Co are associated (or correlated) with Sichuan Teway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Teway Food has no effect on the direction of Shuhua Sports i.e., Shuhua Sports and Sichuan Teway go up and down completely randomly.

Pair Corralation between Shuhua Sports and Sichuan Teway

Assuming the 90 days trading horizon Shuhua Sports Co is expected to generate 2.0 times more return on investment than Sichuan Teway. However, Shuhua Sports is 2.0 times more volatile than Sichuan Teway Food. It trades about 0.09 of its potential returns per unit of risk. Sichuan Teway Food is currently generating about 0.03 per unit of risk. If you would invest  778.00  in Shuhua Sports Co on October 26, 2024 and sell it today you would earn a total of  46.00  from holding Shuhua Sports Co or generate 5.91% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Shuhua Sports Co  vs.  Sichuan Teway Food

 Performance 
       Timeline  
Shuhua Sports 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Shuhua Sports Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shuhua Sports may actually be approaching a critical reversion point that can send shares even higher in February 2025.
Sichuan Teway Food 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Sichuan Teway Food has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sichuan Teway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shuhua Sports and Sichuan Teway Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Shuhua Sports and Sichuan Teway

The main advantage of trading using opposite Shuhua Sports and Sichuan Teway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shuhua Sports position performs unexpectedly, Sichuan Teway 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 Sichuan Teway will offset losses from the drop in Sichuan Teway's long position.
The idea behind Shuhua Sports Co and Sichuan Teway Food 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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