Correlation Between Shenzhen Bingchuan and Henan Lantian

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

Diversification Opportunities for Shenzhen Bingchuan and Henan Lantian

-0.67

Correlation Coefficient

Shenzhen Bingchuan  Henan Lantian

Excellent diversification

The 3 months correlation between Shenzhen and Henan is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Bingchuan Network and Henan Lantian Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henan Lantian Gas 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 Henan Lantian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henan Lantian Gas has no effect on the direction of Shenzhen Bingchuan i.e., Shenzhen Bingchuan and Henan Lantian go up and down completely randomly.

Pair Corralation between Shenzhen Bingchuan and Henan Lantian

Assuming the 90 days trading horizon Shenzhen Bingchuan Network is expected to under-perform the Henan Lantian. In addition to that, Shenzhen Bingchuan is 3.77 times more volatile than Henan Lantian Gas. It trades about -0.18 of its total potential returns per unit of risk. Henan Lantian Gas is currently generating about -0.03 per unit of volatility. If you would invest  1,137  in Henan Lantian Gas on September 27, 2024 and sell it today you would lose (9.00) from holding Henan Lantian Gas or give up 0.79% of portfolio value over 90 days.

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

Shenzhen Bingchuan Network  vs.  Henan Lantian Gas

Shenzhen Bingchuan

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Bingchuan Network are ranked lower than 8 (%) 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.

Henan Lantian Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Henan Lantian Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Shenzhen Bingchuan and Henan Lantian

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

The idea behind Shenzhen Bingchuan Network and Henan Lantian Gas 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.