Correlation Between City Development and Shaanxi Broadcast

Can any of the company-specific risk be diversified away by investing in both City Development and Shaanxi Broadcast 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 City Development and Shaanxi Broadcast into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between City Development Environment and Shaanxi Broadcast TV, you can compare the effects of market volatilities on City Development and Shaanxi Broadcast 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 City Development with a short position of Shaanxi Broadcast. Check out your portfolio center. Please also check ongoing floating volatility patterns of City Development and Shaanxi Broadcast.

Diversification Opportunities for City Development and Shaanxi Broadcast

0.83

Correlation Coefficient

City Development  Shaanxi Broadcast

Very poor diversification

The 3 months correlation between City and Shaanxi is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding City Development Environment and Shaanxi Broadcast TV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Broadcast and City Development 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 City Development Environment are associated (or correlated) with Shaanxi Broadcast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaanxi Broadcast has no effect on the direction of City Development i.e., City Development and Shaanxi Broadcast go up and down completely randomly.

Pair Corralation between City Development and Shaanxi Broadcast

Assuming the 90 days trading horizon City Development Environment is expected to under-perform the Shaanxi Broadcast. But the stock apears to be less risky and, when comparing its historical volatility, City Development Environment is 1.13 times less risky than Shaanxi Broadcast. The stock trades about -0.02 of its potential returns per unit of risk. The Shaanxi Broadcast TV is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  240.00  in Shaanxi Broadcast TV on October 8, 2024 and sell it today you would lose (1.00) from holding Shaanxi Broadcast TV or give up 0.42% of portfolio value over 90 days.

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

City Development Environment  vs.  Shaanxi Broadcast TV

City Development Env

Risk-Adjusted Performance

0 of 100

Very Weak

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

Shaanxi Broadcast

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with City Development and Shaanxi Broadcast

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

The idea behind City Development Environment and Shaanxi Broadcast TV 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.