Correlation Between Shenzhen Glory and Pengxin International

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

Diversification Opportunities for Shenzhen Glory and Pengxin International

0.85

Correlation Coefficient

Shenzhen Glory  Pengxin International

Very poor diversification

The 3 months correlation between Shenzhen and Pengxin is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Glory Medical and Pengxin International Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pengxin International 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 Pengxin International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pengxin International has no effect on the direction of Shenzhen Glory i.e., Shenzhen Glory and Pengxin International go up and down completely randomly.

Pair Corralation between Shenzhen Glory and Pengxin International

Assuming the 90 days trading horizon Shenzhen Glory Medical is expected to generate 0.89 times more return on investment than Pengxin International. However, Shenzhen Glory Medical is 1.12 times less risky than Pengxin International. It trades about 0.24 of its potential returns per unit of risk. Pengxin International Mining is currently generating about 0.18 per unit of risk. If you would invest  246.00  in Shenzhen Glory Medical on September 15, 2024 and sell it today you would earn a total of  132.00  from holding Shenzhen Glory Medical or generate 53.66% return on investment over 90 days.

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

Shenzhen Glory Medical  vs.  Pengxin International Mining

Shenzhen Glory Medical

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Glory Medical are ranked lower than 18 (%) 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.

Pengxin International

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pengxin International Mining are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pengxin International sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Glory and Pengxin International

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

The idea behind Shenzhen Glory Medical and Pengxin International Mining 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.