Correlation Between Shenzhen MTC and Guangzhou Seagull

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

By analyzing existing cross correlation between Shenzhen MTC Co and Guangzhou Seagull Kitchen, you can compare the effects of market volatilities on Shenzhen MTC and Guangzhou Seagull 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 MTC with a short position of Guangzhou Seagull. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen MTC and Guangzhou Seagull.

Diversification Opportunities for Shenzhen MTC and Guangzhou Seagull

0.75

Correlation Coefficient

Shenzhen MTC  Guangzhou Seagull

Poor diversification

The 3 months correlation between Shenzhen and Guangzhou is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen MTC Co and Guangzhou Seagull Kitchen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Seagull Kitchen and Shenzhen MTC 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 MTC Co are associated (or correlated) with Guangzhou Seagull. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Seagull Kitchen has no effect on the direction of Shenzhen MTC i.e., Shenzhen MTC and Guangzhou Seagull go up and down completely randomly.

Pair Corralation between Shenzhen MTC and Guangzhou Seagull

Assuming the 90 days trading horizon Shenzhen MTC is expected to generate 2.21 times less return on investment than Guangzhou Seagull. In addition to that, Shenzhen MTC is 1.13 times more volatile than Guangzhou Seagull Kitchen. It trades about 0.12 of its total potential returns per unit of risk. Guangzhou Seagull Kitchen is currently generating about 0.3 per unit of volatility. If you would invest  236.00  in Guangzhou Seagull Kitchen on September 14, 2024 and sell it today you would earn a total of  135.00  from holding Guangzhou Seagull Kitchen or generate 57.2% return on investment over 90 days.

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

Shenzhen MTC Co  vs.  Guangzhou Seagull Kitchen

Shenzhen MTC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen MTC Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen MTC sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangzhou Seagull Kitchen

Risk-Adjusted Performance

23 of 100

Solid

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

Pair Trading with Shenzhen MTC and Guangzhou Seagull

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

The idea behind Shenzhen MTC Co and Guangzhou Seagull Kitchen 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.