Correlation Between Shenzhen Agricultural and Anker Innovations

Can any of the company-specific risk be diversified away by investing in both Shenzhen Agricultural and Anker Innovations 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 Anker Innovations 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 Anker Innovations Technology, you can compare the effects of market volatilities on Shenzhen Agricultural and Anker Innovations 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 Anker Innovations. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Agricultural and Anker Innovations.

Diversification Opportunities for Shenzhen Agricultural and Anker Innovations

0.81

Correlation Coefficient

Shenzhen Agricultural  Anker Innovations

Very poor diversification

The 3 months correlation between Shenzhen and Anker is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Agricultural Products and Anker Innovations Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anker Innovations 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 Anker Innovations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anker Innovations has no effect on the direction of Shenzhen Agricultural i.e., Shenzhen Agricultural and Anker Innovations go up and down completely randomly.

Pair Corralation between Shenzhen Agricultural and Anker Innovations

Assuming the 90 days trading horizon Shenzhen Agricultural is expected to generate 2.88 times less return on investment than Anker Innovations. But when comparing it to its historical volatility, Shenzhen Agricultural Products is 1.5 times less risky than Anker Innovations. It trades about 0.04 of its potential returns per unit of risk. Anker Innovations Technology is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,494  in Anker Innovations Technology on September 12, 2024 and sell it today you would earn a total of  3,419  from holding Anker Innovations Technology or generate 62.23% return on investment over 90 days.

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

Shenzhen Agricultural Products  vs.  Anker Innovations Technology

Shenzhen Agricultural

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Agricultural Products are ranked lower than 23 (%) 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.

Anker Innovations

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anker Innovations Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anker Innovations sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Agricultural and Anker Innovations

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

The idea behind Shenzhen Agricultural Products and Anker Innovations 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.