Correlation Between Shaanxi Broadcast and Sichuan Changhong

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

By analyzing existing cross correlation between Shaanxi Broadcast TV and Sichuan Changhong Electric, you can compare the effects of market volatilities on Shaanxi Broadcast and Sichuan Changhong 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 Shaanxi Broadcast with a short position of Sichuan Changhong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shaanxi Broadcast and Sichuan Changhong.

Diversification Opportunities for Shaanxi Broadcast and Sichuan Changhong

0.61

Correlation Coefficient

Shaanxi Broadcast  Sichuan Changhong

Poor diversification

The 3 months correlation between Shaanxi and Sichuan is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Shaanxi Broadcast TV and Sichuan Changhong Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Changhong and Shaanxi Broadcast 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 Shaanxi Broadcast TV are associated (or correlated) with Sichuan Changhong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Changhong has no effect on the direction of Shaanxi Broadcast i.e., Shaanxi Broadcast and Sichuan Changhong go up and down completely randomly.

Pair Corralation between Shaanxi Broadcast and Sichuan Changhong

Assuming the 90 days trading horizon Shaanxi Broadcast TV is expected to under-perform the Sichuan Changhong. But the stock apears to be less risky and, when comparing its historical volatility, Shaanxi Broadcast TV is 1.01 times less risky than Sichuan Changhong. The stock trades about -0.04 of its potential returns per unit of risk. The Sichuan Changhong Electric is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,081  in Sichuan Changhong Electric on September 30, 2024 and sell it today you would lose (3.00) from holding Sichuan Changhong Electric or give up 0.28% of portfolio value over 90 days.

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

Shaanxi Broadcast TV  vs.  Sichuan Changhong Electric

Shaanxi Broadcast

Risk-Adjusted Performance

4 of 100

Insignificant

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

Sichuan Changhong

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Changhong Electric are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Changhong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shaanxi Broadcast and Sichuan Changhong

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

The idea behind Shaanxi Broadcast TV and Sichuan Changhong Electric 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.