Correlation Between Shenzhen Mindray and Liaoning Chengda

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

Diversification Opportunities for Shenzhen Mindray and Liaoning Chengda

0.91

Correlation Coefficient

Shenzhen Mindray  Liaoning Chengda

Almost no diversification

The 3 months correlation between Shenzhen and Liaoning is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Mindray Bio Medical and Liaoning Chengda Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Chengda Bio 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 Liaoning Chengda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Chengda Bio has no effect on the direction of Shenzhen Mindray i.e., Shenzhen Mindray and Liaoning Chengda go up and down completely randomly.

Pair Corralation between Shenzhen Mindray and Liaoning Chengda

Assuming the 90 days trading horizon Shenzhen Mindray is expected to generate 1.46 times less return on investment than Liaoning Chengda. In addition to that, Shenzhen Mindray is 1.16 times more volatile than Liaoning Chengda Biotechnology. It trades about 0.08 of its total potential returns per unit of risk. Liaoning Chengda Biotechnology is currently generating about 0.14 per unit of volatility. If you would invest  2,248  in Liaoning Chengda Biotechnology on September 13, 2024 and sell it today you would earn a total of  532.00  from holding Liaoning Chengda Biotechnology or generate 23.67% return on investment over 90 days.

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

Shenzhen Mindray Bio Medical  vs.  Liaoning Chengda Biotechnology

Shenzhen Mindray Bio

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Mindray Bio Medical are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Mindray sustained solid returns over the last few months and may actually be approaching a breakup point.

Liaoning Chengda Bio

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Shenzhen Mindray and Liaoning Chengda

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

The idea behind Shenzhen Mindray Bio Medical and Liaoning Chengda Biotechnology 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.