Correlation Between China Reform and Shenyang Blue

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

By analyzing existing cross correlation between China Reform Health and Shenyang Blue Silver, you can compare the effects of market volatilities on China Reform and Shenyang Blue 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 China Reform with a short position of Shenyang Blue. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Reform and Shenyang Blue.

Diversification Opportunities for China Reform and Shenyang Blue

0.71

Correlation Coefficient

China Reform  Shenyang Blue

Poor diversification

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

Pair Corralation between China Reform and Shenyang Blue

Assuming the 90 days trading horizon China Reform Health is expected to under-perform the Shenyang Blue. But the stock apears to be less risky and, when comparing its historical volatility, China Reform Health is 1.25 times less risky than Shenyang Blue. The stock trades about -0.53 of its potential returns per unit of risk. The Shenyang Blue Silver is currently generating about -0.37 of returns per unit of risk over similar time horizon. If you would invest  2,700  in Shenyang Blue Silver on October 9, 2024 and sell it today you would lose (544.00) from holding Shenyang Blue Silver or give up 20.15% of portfolio value over 90 days.

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

China Reform Health  vs.  Shenyang Blue Silver

China Reform Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Reform Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Reform is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shenyang Blue Silver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenyang Blue Silver has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Reform and Shenyang Blue

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

The idea behind China Reform Health and Shenyang Blue Silver 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.