Correlation Between Shenzhen Shenbao and Shanghai Action

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

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

Diversification Opportunities for Shenzhen Shenbao and Shanghai Action

0.02

Correlation Coefficient

Shenzhen Shenbao  Shanghai Action

Significant diversification

The 3 months correlation between Shenzhen and Shanghai is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Shenbao Industrial and Shanghai Action Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Action Education and Shenzhen Shenbao 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 Shenbao Industrial are associated (or correlated) with Shanghai Action. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Action Education has no effect on the direction of Shenzhen Shenbao i.e., Shenzhen Shenbao and Shanghai Action go up and down completely randomly.

Pair Corralation between Shenzhen Shenbao and Shanghai Action

Assuming the 90 days trading horizon Shenzhen Shenbao Industrial is expected to under-perform the Shanghai Action. But the stock apears to be less risky and, when comparing its historical volatility, Shenzhen Shenbao Industrial is 1.77 times less risky than Shanghai Action. The stock trades about -0.05 of its potential returns per unit of risk. The Shanghai Action Education is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,426  in Shanghai Action Education on December 27, 2024 and sell it today you would earn a total of  804.00  from holding Shanghai Action Education or generate 23.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Shenzhen Shenbao Industrial  vs.  Shanghai Action Education

Shenzhen Shenbao Ind

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shenzhen Shenbao Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shenzhen Shenbao is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shanghai Action Education

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Action Education are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Action sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Shenbao and Shanghai Action

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

The idea behind Shenzhen Shenbao Industrial and Shanghai Action Education 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.