Correlation Between Tianshui Huatian and Shenzhen Kexin

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

By analyzing existing cross correlation between Tianshui Huatian Technology and Shenzhen Kexin Communication, you can compare the effects of market volatilities on Tianshui Huatian and Shenzhen Kexin 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 Tianshui Huatian with a short position of Shenzhen Kexin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tianshui Huatian and Shenzhen Kexin.

Diversification Opportunities for Tianshui Huatian and Shenzhen Kexin

0.86

Correlation Coefficient

Tianshui Huatian  Shenzhen Kexin

Very poor diversification

The 3 months correlation between Tianshui and Shenzhen is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Tianshui Huatian Technology and Shenzhen Kexin Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Kexin Commu and Tianshui Huatian 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 Tianshui Huatian Technology are associated (or correlated) with Shenzhen Kexin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Kexin Commu has no effect on the direction of Tianshui Huatian i.e., Tianshui Huatian and Shenzhen Kexin go up and down completely randomly.

Pair Corralation between Tianshui Huatian and Shenzhen Kexin

Assuming the 90 days trading horizon Tianshui Huatian Technology is expected to under-perform the Shenzhen Kexin. But the stock apears to be less risky and, when comparing its historical volatility, Tianshui Huatian Technology is 1.8 times less risky than Shenzhen Kexin. The stock trades about -0.03 of its potential returns per unit of risk. The Shenzhen Kexin Communication is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,425  in Shenzhen Kexin Communication on September 22, 2024 and sell it today you would lose (8.00) from holding Shenzhen Kexin Communication or give up 0.56% of portfolio value over 90 days.

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

Tianshui Huatian Technology  vs.  Shenzhen Kexin Communication

Tianshui Huatian Tec

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tianshui Huatian Technology are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianshui Huatian sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Kexin Commu

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Kexin Communication are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Kexin sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tianshui Huatian and Shenzhen Kexin

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

The idea behind Tianshui Huatian Technology and Shenzhen Kexin 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.