Correlation Between Shenzhen Topway and Zhejiang Dahua

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

By analyzing existing cross correlation between Shenzhen Topway Video and Zhejiang Dahua Technology, you can compare the effects of market volatilities on Shenzhen Topway and Zhejiang Dahua 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 Topway with a short position of Zhejiang Dahua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Topway and Zhejiang Dahua.

Diversification Opportunities for Shenzhen Topway and Zhejiang Dahua

0.82

Correlation Coefficient

Shenzhen Topway  Zhejiang Dahua

Very poor diversification

The 3 months correlation between Shenzhen and Zhejiang is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Topway Video and Zhejiang Dahua Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Dahua Technology and Shenzhen Topway 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 Topway Video are associated (or correlated) with Zhejiang Dahua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Dahua Technology has no effect on the direction of Shenzhen Topway i.e., Shenzhen Topway and Zhejiang Dahua go up and down completely randomly.

Pair Corralation between Shenzhen Topway and Zhejiang Dahua

Assuming the 90 days trading horizon Shenzhen Topway Video is expected to generate 1.28 times more return on investment than Zhejiang Dahua. However, Shenzhen Topway is 1.28 times more volatile than Zhejiang Dahua Technology. It trades about 0.2 of its potential returns per unit of risk. Zhejiang Dahua Technology is currently generating about 0.16 per unit of risk. If you would invest  710.00  in Shenzhen Topway Video on September 12, 2024 and sell it today you would earn a total of  333.00  from holding Shenzhen Topway Video or generate 46.9% return on investment over 90 days.

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

Shenzhen Topway Video  vs.  Zhejiang Dahua Technology

Shenzhen Topway Video

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Topway Video are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Topway sustained solid returns over the last few months and may actually be approaching a breakup point.

Zhejiang Dahua Technology

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Dahua Technology are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Dahua sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Topway and Zhejiang Dahua

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

The idea behind Shenzhen Topway Video and Zhejiang Dahua Technology 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.