Correlation Between Shenyang Huitian and Shenzhen Shenbao

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

By analyzing existing cross correlation between Shenyang Huitian Thermal and Shenzhen Shenbao Industrial, you can compare the effects of market volatilities on Shenyang Huitian and Shenzhen Shenbao 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 Shenyang Huitian with a short position of Shenzhen Shenbao. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenyang Huitian and Shenzhen Shenbao.

Diversification Opportunities for Shenyang Huitian and Shenzhen Shenbao

0.74

Correlation Coefficient

Shenyang Huitian  Shenzhen Shenbao

Poor diversification

The 3 months correlation between Shenyang and Shenzhen is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Shenyang Huitian Thermal and Shenzhen Shenbao Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Shenbao Ind and Shenyang Huitian 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 Shenyang Huitian Thermal are associated (or correlated) with Shenzhen Shenbao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Shenbao Ind has no effect on the direction of Shenyang Huitian i.e., Shenyang Huitian and Shenzhen Shenbao go up and down completely randomly.

Pair Corralation between Shenyang Huitian and Shenzhen Shenbao

Assuming the 90 days trading horizon Shenyang Huitian Thermal is expected to under-perform the Shenzhen Shenbao. In addition to that, Shenyang Huitian is 2.05 times more volatile than Shenzhen Shenbao Industrial. It trades about -0.06 of its total potential returns per unit of risk. Shenzhen Shenbao Industrial is currently generating about -0.09 per unit of volatility. If you would invest  679.00  in Shenzhen Shenbao Industrial on October 6, 2024 and sell it today you would lose (51.00) from holding Shenzhen Shenbao Industrial or give up 7.51% of portfolio value over 90 days.

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

Shenyang Huitian Thermal  vs.  Shenzhen Shenbao Industrial

Shenyang Huitian Thermal

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shenyang Huitian Thermal are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenyang Huitian may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Shenzhen Shenbao Ind

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen Shenbao Industrial 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 Shenyang Huitian and Shenzhen Shenbao

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

The idea behind Shenyang Huitian Thermal and Shenzhen Shenbao Industrial 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.