Correlation Between Shenzhen and WuXi AppTec

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

By analyzing existing cross correlation between Shenzhen AV Display Co and WuXi AppTec Co, you can compare the effects of market volatilities on Shenzhen and WuXi AppTec 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 with a short position of WuXi AppTec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen and WuXi AppTec.

Diversification Opportunities for Shenzhen and WuXi AppTec

0.84

Correlation Coefficient

Shenzhen  WuXi AppTec

Very poor diversification

The 3 months correlation between Shenzhen and WuXi is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen AV Display Co and WuXi AppTec Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WuXi AppTec and Shenzhen 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 AV Display Co are associated (or correlated) with WuXi AppTec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WuXi AppTec has no effect on the direction of Shenzhen i.e., Shenzhen and WuXi AppTec go up and down completely randomly.

Pair Corralation between Shenzhen and WuXi AppTec

Assuming the 90 days trading horizon Shenzhen AV Display Co is expected to generate 1.28 times more return on investment than WuXi AppTec. However, Shenzhen is 1.28 times more volatile than WuXi AppTec Co. It trades about 0.16 of its potential returns per unit of risk. WuXi AppTec Co is currently generating about 0.15 per unit of risk. If you would invest  2,507  in Shenzhen AV Display Co on September 24, 2024 and sell it today you would earn a total of  1,103  from holding Shenzhen AV Display Co or generate 44.0% return on investment over 90 days.

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

Shenzhen AV Display Co  vs.  WuXi AppTec Co

Shenzhen AV Display

Risk-Adjusted Performance

12 of 100

Good

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

WuXi AppTec

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Shenzhen and WuXi AppTec

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

The idea behind Shenzhen AV Display Co and WuXi AppTec Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.