Correlation Between State Grid and Zhejiang Dahua

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

By analyzing existing cross correlation between State Grid InformationCommunication and Zhejiang Dahua Technology, you can compare the effects of market volatilities on State Grid and Zhejiang Dahua 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 State Grid with a short position of Zhejiang Dahua. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Grid and Zhejiang Dahua.

Diversification Opportunities for State Grid and Zhejiang Dahua

0.82

Correlation Coefficient

State Grid  Zhejiang Dahua

Very poor diversification

The 3 months correlation between State and Zhejiang is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding State Grid InformationCommunic and Zhejiang Dahua Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Dahua Technology and State Grid 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 State Grid InformationCommunication are associated (or correlated) with Zhejiang Dahua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Dahua Technology has no effect on the direction of State Grid i.e., State Grid and Zhejiang Dahua go up and down completely randomly.

Pair Corralation between State Grid and Zhejiang Dahua

Assuming the 90 days trading horizon State Grid InformationCommunication is expected to under-perform the Zhejiang Dahua. In addition to that, State Grid is 1.22 times more volatile than Zhejiang Dahua Technology. It trades about -0.16 of its total potential returns per unit of risk. Zhejiang Dahua Technology is currently generating about -0.13 per unit of volatility. If you would invest  1,819  in Zhejiang Dahua Technology on September 12, 2024 and sell it today you would lose (116.00) from holding Zhejiang Dahua Technology or give up 6.38% of portfolio value over 90 days.

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

State Grid InformationCommunic  vs.  Zhejiang Dahua Technology

State Grid Informati

Risk-Adjusted Performance

12 of 100

Good

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

Zhejiang Dahua Technology

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with State Grid and Zhejiang Dahua

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

The idea behind State Grid InformationCommunication and Zhejiang Dahua 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.