Correlation Between Shenzhen Overseas and Central China

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

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

Diversification Opportunities for Shenzhen Overseas and Central China

0.35

Correlation Coefficient

Shenzhen Overseas  Central China

Weak diversification

The 3 months correlation between Shenzhen and Central is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Overseas Chinese and Central China Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central China Land and Shenzhen Overseas 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 Overseas Chinese are associated (or correlated) with Central China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central China Land has no effect on the direction of Shenzhen Overseas i.e., Shenzhen Overseas and Central China go up and down completely randomly.

Pair Corralation between Shenzhen Overseas and Central China

Assuming the 90 days trading horizon Shenzhen Overseas is expected to generate 15.57 times less return on investment than Central China. But when comparing it to its historical volatility, Shenzhen Overseas Chinese is 1.1 times less risky than Central China. It trades about 0.01 of its potential returns per unit of risk. Central China Land is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,149  in Central China Land on September 21, 2024 and sell it today you would earn a total of  44.00  from holding Central China Land or generate 3.83% return on investment over 90 days.

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

Shenzhen Overseas Chinese  vs.  Central China Land

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.

Central China Land

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Central China Land are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Central China sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Overseas and Central China

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

The idea behind Shenzhen Overseas Chinese and Central China Land 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..