Correlation Between Shenzhen Agricultural and Shenzhen Overseas

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

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

Diversification Opportunities for Shenzhen Agricultural and Shenzhen Overseas

0.86

Correlation Coefficient

Shenzhen Agricultural  Shenzhen Overseas

Very poor diversification

The 3 months correlation between Shenzhen and Shenzhen is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Agricultural Products and Shenzhen Overseas Chinese in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Overseas Chinese and Shenzhen Agricultural 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 Agricultural Products are associated (or correlated) with Shenzhen Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Overseas Chinese has no effect on the direction of Shenzhen Agricultural i.e., Shenzhen Agricultural and Shenzhen Overseas go up and down completely randomly.

Pair Corralation between Shenzhen Agricultural and Shenzhen Overseas

Assuming the 90 days trading horizon Shenzhen Agricultural Products is expected to generate 0.69 times more return on investment than Shenzhen Overseas. However, Shenzhen Agricultural Products is 1.45 times less risky than Shenzhen Overseas. It trades about 0.05 of its potential returns per unit of risk. Shenzhen Overseas Chinese is currently generating about 0.01 per unit of risk. If you would invest  630.00  in Shenzhen Agricultural Products on September 19, 2024 and sell it today you would earn a total of  116.00  from holding Shenzhen Agricultural Products or generate 18.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.58%
Values	Daily Returns

Shenzhen Agricultural Products  vs.  Shenzhen Overseas Chinese

Shenzhen Agricultural

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Agricultural Products are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Agricultural sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Overseas Chinese

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Overseas Chinese are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Overseas sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Agricultural and Shenzhen Overseas

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

The idea behind Shenzhen Agricultural Products and Shenzhen Overseas Chinese 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.