Correlation Between Shenzhen Bingchuan and Changchun Faway

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Can any of the company-specific risk be diversified away by investing in both Shenzhen Bingchuan and Changchun Faway 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 Bingchuan and Changchun Faway into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shenzhen Bingchuan Network and Changchun Faway Automobile, you can compare the effects of market volatilities on Shenzhen Bingchuan and Changchun Faway 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 Bingchuan with a short position of Changchun Faway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Bingchuan and Changchun Faway.

Diversification Opportunities for Shenzhen Bingchuan and Changchun Faway

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Shenzhen and Changchun is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Bingchuan Network and Changchun Faway Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun Faway Auto and Shenzhen Bingchuan 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 Bingchuan Network are associated (or correlated) with Changchun Faway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun Faway Auto has no effect on the direction of Shenzhen Bingchuan i.e., Shenzhen Bingchuan and Changchun Faway go up and down completely randomly.

Pair Corralation between Shenzhen Bingchuan and Changchun Faway

Assuming the 90 days trading horizon Shenzhen Bingchuan Network is expected to generate 2.09 times more return on investment than Changchun Faway. However, Shenzhen Bingchuan is 2.09 times more volatile than Changchun Faway Automobile. It trades about 0.28 of its potential returns per unit of risk. Changchun Faway Automobile is currently generating about 0.2 per unit of risk. If you would invest  1,303  in Shenzhen Bingchuan Network on September 17, 2024 and sell it today you would earn a total of  1,405  from holding Shenzhen Bingchuan Network or generate 107.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Shenzhen Bingchuan Network  vs.  Changchun Faway Automobile

 Performance 
       Timeline  
Shenzhen Bingchuan 

Risk-Adjusted Performance

21 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Bingchuan Network are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Bingchuan sustained solid returns over the last few months and may actually be approaching a breakup point.
Changchun Faway Auto 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Changchun Faway Automobile are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun Faway sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Bingchuan and Changchun Faway Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Shenzhen Bingchuan and Changchun Faway

The main advantage of trading using opposite Shenzhen Bingchuan and Changchun Faway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shenzhen Bingchuan position performs unexpectedly, Changchun Faway 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 Changchun Faway will offset losses from the drop in Changchun Faway's long position.
The idea behind Shenzhen Bingchuan Network and Changchun Faway Automobile 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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