Correlation Between Shenzhen Agricultural and Dongguan Tarry

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

By analyzing existing cross correlation between Shenzhen Agricultural Products and Dongguan Tarry Electronics, you can compare the effects of market volatilities on Shenzhen Agricultural and Dongguan Tarry 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 Shenzhen Agricultural with a short position of Dongguan Tarry. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Agricultural and Dongguan Tarry.

Diversification Opportunities for Shenzhen Agricultural and Dongguan Tarry

0.8

Correlation Coefficient

Shenzhen Agricultural  Dongguan Tarry

Very poor diversification

The 3 months correlation between Shenzhen and Dongguan is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Agricultural Products and Dongguan Tarry Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongguan Tarry Elect and Shenzhen Agricultural 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 Shenzhen Agricultural Products are associated (or correlated) with Dongguan Tarry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongguan Tarry Elect has no effect on the direction of Shenzhen Agricultural i.e., Shenzhen Agricultural and Dongguan Tarry go up and down completely randomly.

Pair Corralation between Shenzhen Agricultural and Dongguan Tarry

Assuming the 90 days trading horizon Shenzhen Agricultural is expected to generate 1.19 times less return on investment than Dongguan Tarry. But when comparing it to its historical volatility, Shenzhen Agricultural Products is 2.0 times less risky than Dongguan Tarry. It trades about 0.3 of its potential returns per unit of risk. Dongguan Tarry Electronics is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,201  in Dongguan Tarry Electronics on September 13, 2024 and sell it today you would earn a total of  2,192  from holding Dongguan Tarry Electronics or generate 52.18% return on investment over 90 days.

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

Shenzhen Agricultural Products  vs.  Dongguan Tarry Electronics

Shenzhen Agricultural

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Agricultural Products are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Agricultural sustained solid returns over the last few months and may actually be approaching a breakup point.

Dongguan Tarry Elect

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongguan Tarry Electronics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongguan Tarry sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Agricultural and Dongguan Tarry

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

The idea behind Shenzhen Agricultural Products and Dongguan Tarry Electronics 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.