Correlation Between Shenzhen Glory and Ningxia Building

Can any of the company-specific risk be diversified away by investing in both Shenzhen Glory and Ningxia Building 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 Ningxia Building 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 Ningxia Building Materials, you can compare the effects of market volatilities on Shenzhen Glory and Ningxia Building 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 Ningxia Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Glory and Ningxia Building.

Diversification Opportunities for Shenzhen Glory and Ningxia Building

0.94

Correlation Coefficient

Shenzhen Glory  Ningxia Building

Almost no diversification

The 3 months correlation between Shenzhen and Ningxia is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Glory Medical and Ningxia Building Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningxia Building Mat 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 Ningxia Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningxia Building Mat has no effect on the direction of Shenzhen Glory i.e., Shenzhen Glory and Ningxia Building go up and down completely randomly.

Pair Corralation between Shenzhen Glory and Ningxia Building

Assuming the 90 days trading horizon Shenzhen Glory is expected to generate 1.09 times less return on investment than Ningxia Building. In addition to that, Shenzhen Glory is 1.01 times more volatile than Ningxia Building Materials. It trades about 0.22 of its total potential returns per unit of risk. Ningxia Building Materials is currently generating about 0.24 per unit of volatility. If you would invest  945.00  in Ningxia Building Materials on September 5, 2024 and sell it today you would earn a total of  545.00  from holding Ningxia Building Materials or generate 57.67% return on investment over 90 days.

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

Shenzhen Glory Medical  vs.  Ningxia Building Materials

Shenzhen Glory Medical

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Glory Medical are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Glory sustained solid returns over the last few months and may actually be approaching a breakup point.

Ningxia Building Mat

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ningxia Building Materials are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningxia Building sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Glory and Ningxia Building

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

The idea behind Shenzhen Glory Medical and Ningxia Building Materials 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.