Correlation Between Shijiazhuang Tonhe and Leaguer Shenzhen

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

By analyzing existing cross correlation between Shijiazhuang Tonhe Electronics and Leaguer Shenzhen MicroElectronics, you can compare the effects of market volatilities on Shijiazhuang Tonhe and Leaguer Shenzhen 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 Shijiazhuang Tonhe with a short position of Leaguer Shenzhen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shijiazhuang Tonhe and Leaguer Shenzhen.

Diversification Opportunities for Shijiazhuang Tonhe and Leaguer Shenzhen

0.82

Correlation Coefficient

Shijiazhuang Tonhe  Leaguer Shenzhen

Very poor diversification

The 3 months correlation between Shijiazhuang and Leaguer is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Shijiazhuang Tonhe Electronics and Leaguer Shenzhen MicroElectron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leaguer Shenzhen Mic and Shijiazhuang Tonhe 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 Shijiazhuang Tonhe Electronics are associated (or correlated) with Leaguer Shenzhen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leaguer Shenzhen Mic has no effect on the direction of Shijiazhuang Tonhe i.e., Shijiazhuang Tonhe and Leaguer Shenzhen go up and down completely randomly.

Pair Corralation between Shijiazhuang Tonhe and Leaguer Shenzhen

Assuming the 90 days trading horizon Shijiazhuang Tonhe is expected to generate 1.64 times less return on investment than Leaguer Shenzhen. But when comparing it to its historical volatility, Shijiazhuang Tonhe Electronics is 1.17 times less risky than Leaguer Shenzhen. It trades about 0.12 of its potential returns per unit of risk. Leaguer Shenzhen MicroElectronics is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,945  in Leaguer Shenzhen MicroElectronics on September 25, 2024 and sell it today you would earn a total of  933.00  from holding Leaguer Shenzhen MicroElectronics or generate 47.97% return on investment over 90 days.

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

Shijiazhuang Tonhe Electronics  vs.  Leaguer Shenzhen MicroElectron

Shijiazhuang Tonhe

Risk-Adjusted Performance

9 of 100

OK

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

Leaguer Shenzhen Mic

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Leaguer Shenzhen MicroElectronics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Leaguer Shenzhen sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shijiazhuang Tonhe and Leaguer Shenzhen

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

The idea behind Shijiazhuang Tonhe Electronics and Leaguer Shenzhen MicroElectronics 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.