Correlation Between Shenzhen Glory and Tongyu Communication

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

By analyzing existing cross correlation between Shenzhen Glory Medical and Tongyu Communication, you can compare the effects of market volatilities on Shenzhen Glory and Tongyu Communication 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 Glory with a short position of Tongyu Communication. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Glory and Tongyu Communication.

Diversification Opportunities for Shenzhen Glory and Tongyu Communication

0.81

Correlation Coefficient

Shenzhen Glory  Tongyu Communication

Very poor diversification

The 3 months correlation between Shenzhen and Tongyu is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Glory Medical and Tongyu Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tongyu Communication and Shenzhen Glory 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 Glory Medical are associated (or correlated) with Tongyu Communication. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tongyu Communication has no effect on the direction of Shenzhen Glory i.e., Shenzhen Glory and Tongyu Communication go up and down completely randomly.

Pair Corralation between Shenzhen Glory and Tongyu Communication

Assuming the 90 days trading horizon Shenzhen Glory Medical is expected to generate 1.84 times more return on investment than Tongyu Communication. However, Shenzhen Glory is 1.84 times more volatile than Tongyu Communication. It trades about -0.05 of its potential returns per unit of risk. Tongyu Communication is currently generating about -0.11 per unit of risk. If you would invest  338.00  in Shenzhen Glory Medical on September 29, 2024 and sell it today you would lose (20.00) from holding Shenzhen Glory Medical or give up 5.92% of portfolio value over 90 days.

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

Shenzhen Glory Medical  vs.  Tongyu Communication

Shenzhen Glory Medical

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Glory Medical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shenzhen Glory is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tongyu Communication

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Shenzhen Glory and Tongyu Communication

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

The idea behind Shenzhen Glory Medical and Tongyu Communication 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.