Correlation Between Shenzhen Mindray and HengFeng Information

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

By analyzing existing cross correlation between Shenzhen Mindray Bio Medical and HengFeng Information Technology, you can compare the effects of market volatilities on Shenzhen Mindray and HengFeng Information 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 Mindray with a short position of HengFeng Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Mindray and HengFeng Information.

Diversification Opportunities for Shenzhen Mindray and HengFeng Information

0.67

Correlation Coefficient

Shenzhen Mindray  HengFeng Information

Poor diversification

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

Pair Corralation between Shenzhen Mindray and HengFeng Information

Assuming the 90 days trading horizon Shenzhen Mindray is expected to generate 1.94 times less return on investment than HengFeng Information. But when comparing it to its historical volatility, Shenzhen Mindray Bio Medical is 1.47 times less risky than HengFeng Information. It trades about 0.05 of its potential returns per unit of risk. HengFeng Information Technology is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,089  in HengFeng Information Technology on September 26, 2024 and sell it today you would earn a total of  156.00  from holding HengFeng Information Technology or generate 14.33% return on investment over 90 days.

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

Shenzhen Mindray Bio Medical  vs.  HengFeng Information Technolog

Shenzhen Mindray Bio

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Mindray Bio Medical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Mindray may actually be approaching a critical reversion point that can send shares even higher in January 2025.

HengFeng Information

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HengFeng Information Technology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HengFeng Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Mindray and HengFeng Information

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

The idea behind Shenzhen Mindray Bio Medical and HengFeng Information Technology 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.