Correlation Between Shenzhen SDG and ChengDu Hi

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

By analyzing existing cross correlation between Shenzhen SDG Information and ChengDu Hi Tech Development, you can compare the effects of market volatilities on Shenzhen SDG and ChengDu Hi 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 SDG with a short position of ChengDu Hi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen SDG and ChengDu Hi.

Diversification Opportunities for Shenzhen SDG and ChengDu Hi

0.59

Correlation Coefficient

Shenzhen SDG  ChengDu Hi

Very weak diversification

The 3 months correlation between Shenzhen and ChengDu is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen SDG Information and ChengDu Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChengDu Hi Tech and Shenzhen SDG 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 SDG Information are associated (or correlated) with ChengDu Hi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChengDu Hi Tech has no effect on the direction of Shenzhen SDG i.e., Shenzhen SDG and ChengDu Hi go up and down completely randomly.

Pair Corralation between Shenzhen SDG and ChengDu Hi

Assuming the 90 days trading horizon Shenzhen SDG is expected to generate 1.31 times less return on investment than ChengDu Hi. But when comparing it to its historical volatility, Shenzhen SDG Information is 1.66 times less risky than ChengDu Hi. It trades about 0.12 of its potential returns per unit of risk. ChengDu Hi Tech Development is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,369  in ChengDu Hi Tech Development on September 29, 2024 and sell it today you would earn a total of  1,996  from holding ChengDu Hi Tech Development or generate 45.69% return on investment over 90 days.

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

Shenzhen SDG Information  vs.  ChengDu Hi Tech Development

Shenzhen SDG Information

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen SDG Information are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen SDG sustained solid returns over the last few months and may actually be approaching a breakup point.

ChengDu Hi Tech

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ChengDu Hi Tech Development are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ChengDu Hi sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen SDG and ChengDu Hi

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

The idea behind Shenzhen SDG Information and ChengDu Hi Tech Development 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.