Correlation Between Zhongshan Public and Wuhan Yangtze

Can any of the company-specific risk be diversified away by investing in both Zhongshan Public and Wuhan Yangtze 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 Zhongshan Public and Wuhan Yangtze into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhongshan Public Utilities and Wuhan Yangtze Communication, you can compare the effects of market volatilities on Zhongshan Public and Wuhan Yangtze 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 Zhongshan Public with a short position of Wuhan Yangtze. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongshan Public and Wuhan Yangtze.

Diversification Opportunities for Zhongshan Public and Wuhan Yangtze

0.25

Correlation Coefficient

Zhongshan Public  Wuhan Yangtze

Modest diversification

The 3 months correlation between Zhongshan and Wuhan is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Zhongshan Public Utilities and Wuhan Yangtze Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wuhan Yangtze Commun and Zhongshan Public 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 Zhongshan Public Utilities are associated (or correlated) with Wuhan Yangtze. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wuhan Yangtze Commun has no effect on the direction of Zhongshan Public i.e., Zhongshan Public and Wuhan Yangtze go up and down completely randomly.

Pair Corralation between Zhongshan Public and Wuhan Yangtze

Assuming the 90 days trading horizon Zhongshan Public Utilities is expected to generate 0.4 times more return on investment than Wuhan Yangtze. However, Zhongshan Public Utilities is 2.51 times less risky than Wuhan Yangtze. It trades about 0.02 of its potential returns per unit of risk. Wuhan Yangtze Communication is currently generating about -0.11 per unit of risk. If you would invest  871.00  in Zhongshan Public Utilities on December 2, 2024 and sell it today you would earn a total of  12.00  from holding Zhongshan Public Utilities or generate 1.38% return on investment over 90 days.

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

Zhongshan Public Utilities  vs.  Wuhan Yangtze Communication

Zhongshan Public Uti

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongshan Public Utilities are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Zhongshan Public is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wuhan Yangtze Commun

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wuhan Yangtze Communication 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Zhongshan Public and Wuhan Yangtze

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

The idea behind Zhongshan Public Utilities and Wuhan Yangtze Communication 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.