Correlation Between Shenzhen Agricultural and China Life

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

Diversification Opportunities for Shenzhen Agricultural and China Life

0.72

Correlation Coefficient

Shenzhen Agricultural  China Life

Poor diversification

The 3 months correlation between Shenzhen and China is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Agricultural Products and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life Insurance 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 China Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of Shenzhen Agricultural i.e., Shenzhen Agricultural and China Life go up and down completely randomly.

Pair Corralation between Shenzhen Agricultural and China Life

Assuming the 90 days trading horizon Shenzhen Agricultural Products is expected to generate 0.71 times more return on investment than China Life. However, Shenzhen Agricultural Products is 1.41 times less risky than China Life. It trades about 0.3 of its potential returns per unit of risk. China Life Insurance is currently generating about 0.14 per unit of risk. If you would invest  528.00  in Shenzhen Agricultural Products on September 13, 2024 and sell it today you would earn a total of  249.00  from holding Shenzhen Agricultural Products or generate 47.16% return on investment over 90 days.

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

Shenzhen Agricultural Products  vs.  China Life Insurance

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.

China Life Insurance

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Life Insurance are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Life sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Agricultural and China Life

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

The idea behind Shenzhen Agricultural Products and China Life Insurance 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.