Correlation Between Changchun High and Shenzhen MTC

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

By analyzing existing cross correlation between Changchun High New and Shenzhen MTC Co, you can compare the effects of market volatilities on Changchun High and Shenzhen MTC 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 Changchun High with a short position of Shenzhen MTC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changchun High and Shenzhen MTC.

Diversification Opportunities for Changchun High and Shenzhen MTC

0.9

Correlation Coefficient

Changchun High  Shenzhen MTC

Almost no diversification

The 3 months correlation between Changchun and Shenzhen is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Changchun High New and Shenzhen MTC Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen MTC and Changchun High 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 Changchun High New are associated (or correlated) with Shenzhen MTC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen MTC has no effect on the direction of Changchun High i.e., Changchun High and Shenzhen MTC go up and down completely randomly.

Pair Corralation between Changchun High and Shenzhen MTC

Assuming the 90 days trading horizon Changchun High New is expected to generate 1.11 times more return on investment than Shenzhen MTC. However, Changchun High is 1.11 times more volatile than Shenzhen MTC Co. It trades about 0.16 of its potential returns per unit of risk. Shenzhen MTC Co is currently generating about 0.07 per unit of risk. If you would invest  7,983  in Changchun High New on September 3, 2024 and sell it today you would earn a total of  2,739  from holding Changchun High New or generate 34.31% return on investment over 90 days.

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

Changchun High New  vs.  Shenzhen MTC Co

Changchun High New

Risk-Adjusted Performance

12 of 100

Good

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

Shenzhen MTC

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen MTC Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen MTC sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Changchun High and Shenzhen MTC

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

The idea behind Changchun High New and Shenzhen MTC Co 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.