Correlation Between Shenzhen SDG and Zhonghong Pulin

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

Diversification Opportunities for Shenzhen SDG and Zhonghong Pulin

0.71

Correlation Coefficient

Shenzhen SDG  Zhonghong Pulin

Poor diversification

The 3 months correlation between Shenzhen and Zhonghong is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen SDG Information and Zhonghong Pulin Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhonghong Pulin Medical 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 Zhonghong Pulin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhonghong Pulin Medical has no effect on the direction of Shenzhen SDG i.e., Shenzhen SDG and Zhonghong Pulin go up and down completely randomly.

Pair Corralation between Shenzhen SDG and Zhonghong Pulin

Assuming the 90 days trading horizon Shenzhen SDG is expected to generate 1.54 times less return on investment than Zhonghong Pulin. In addition to that, Shenzhen SDG is 1.18 times more volatile than Zhonghong Pulin Medical. It trades about 0.01 of its total potential returns per unit of risk. Zhonghong Pulin Medical is currently generating about 0.01 per unit of volatility. If you would invest  1,346  in Zhonghong Pulin Medical on October 3, 2024 and sell it today you would lose (60.00) from holding Zhonghong Pulin Medical or give up 4.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Shenzhen SDG Information  vs.  Zhonghong Pulin Medical

Shenzhen SDG Information

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen SDG Information are ranked lower than 10 (%) 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.

Zhonghong Pulin Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhonghong Pulin Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Shenzhen SDG and Zhonghong Pulin

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

The idea behind Shenzhen SDG Information and Zhonghong Pulin Medical 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.