Correlation Between Shenzhen MYS and Guangdong Skychem

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

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

Diversification Opportunities for Shenzhen MYS and Guangdong Skychem

0.68

Correlation Coefficient

Shenzhen MYS  Guangdong Skychem

Poor diversification

The 3 months correlation between Shenzhen and Guangdong is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen MYS Environmental and Guangdong Skychem Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Skychem and Shenzhen MYS 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 Shenzhen MYS Environmental are associated (or correlated) with Guangdong Skychem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Skychem has no effect on the direction of Shenzhen MYS i.e., Shenzhen MYS and Guangdong Skychem go up and down completely randomly.

Pair Corralation between Shenzhen MYS and Guangdong Skychem

Assuming the 90 days trading horizon Shenzhen MYS Environmental is expected to under-perform the Guangdong Skychem. In addition to that, Shenzhen MYS is 1.27 times more volatile than Guangdong Skychem Technology. It trades about -0.37 of its total potential returns per unit of risk. Guangdong Skychem Technology is currently generating about -0.15 per unit of volatility. If you would invest  12,300  in Guangdong Skychem Technology on October 8, 2024 and sell it today you would lose (895.00) from holding Guangdong Skychem Technology or give up 7.28% of portfolio value over 90 days.

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

Shenzhen MYS Environmental  vs.  Guangdong Skychem Technology

Shenzhen MYS Environ

Risk-Adjusted Performance

0 of 100

Very Weak

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

Guangdong Skychem

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Skychem Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Skychem sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen MYS and Guangdong Skychem

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

The idea behind Shenzhen MYS Environmental and Guangdong Skychem Technology 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.