Correlation Between Shenzhen Changfang and Industrial

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

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

Diversification Opportunities for Shenzhen Changfang and Industrial

0.64

Correlation Coefficient

Shenzhen Changfang  Industrial

Poor diversification

The 3 months correlation between Shenzhen and Industrial is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Changfang Light and Industrial and Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial and Commercial and Shenzhen Changfang 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 Changfang Light are associated (or correlated) with Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial and Commercial has no effect on the direction of Shenzhen Changfang i.e., Shenzhen Changfang and Industrial go up and down completely randomly.

Pair Corralation between Shenzhen Changfang and Industrial

Assuming the 90 days trading horizon Shenzhen Changfang is expected to generate 1.56 times less return on investment than Industrial. In addition to that, Shenzhen Changfang is 3.02 times more volatile than Industrial and Commercial. It trades about 0.06 of its total potential returns per unit of risk. Industrial and Commercial is currently generating about 0.28 per unit of volatility. If you would invest  604.00  in Industrial and Commercial on September 14, 2024 and sell it today you would earn a total of  38.00  from holding Industrial and Commercial or generate 6.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Shenzhen Changfang Light  vs.  Industrial and Commercial

Shenzhen Changfang Light

Risk-Adjusted Performance

17 of 100

Solid

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

Industrial and Commercial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Changfang and Industrial

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

The idea behind Shenzhen Changfang Light and Industrial and Commercial 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.