Correlation Between Hanesbrands and Shenzhen Investment

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

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

Diversification Opportunities for Hanesbrands and Shenzhen Investment

0.6

Correlation Coefficient

Hanesbrands  Shenzhen Investment

Poor diversification

The 3 months correlation between Hanesbrands and Shenzhen is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Hanesbrands and Shenzhen Investment Bay in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Investment Bay and Hanesbrands 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 Hanesbrands are associated (or correlated) with Shenzhen Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Investment Bay has no effect on the direction of Hanesbrands i.e., Hanesbrands and Shenzhen Investment go up and down completely randomly.

Pair Corralation between Hanesbrands and Shenzhen Investment

Considering the 90-day investment horizon Hanesbrands is expected to generate 2.28 times less return on investment than Shenzhen Investment. But when comparing it to its historical volatility, Hanesbrands is 3.35 times less risky than Shenzhen Investment. It trades about 0.13 of its potential returns per unit of risk. Shenzhen Investment Bay is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  202.00  in Shenzhen Investment Bay on September 13, 2024 and sell it today you would earn a total of  60.00  from holding Shenzhen Investment Bay or generate 29.7% return on investment over 90 days.

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

Hanesbrands  vs.  Shenzhen Investment Bay

Hanesbrands

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hanesbrands are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting fundamental drivers, Hanesbrands demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Investment Bay

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Investment Bay are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Shenzhen Investment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hanesbrands and Shenzhen Investment

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

The idea behind Hanesbrands and Shenzhen Investment Bay 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.