Correlation Between Shenzhen New and Jiujiang Shanshui

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

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

Diversification Opportunities for Shenzhen New and Jiujiang Shanshui

0.84

Correlation Coefficient

Shenzhen New  Jiujiang Shanshui

Very poor diversification

The 3 months correlation between Shenzhen and Jiujiang is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen New Nanshan and Jiujiang Shanshui Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiujiang Shanshui and Shenzhen New 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 New Nanshan are associated (or correlated) with Jiujiang Shanshui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiujiang Shanshui has no effect on the direction of Shenzhen New i.e., Shenzhen New and Jiujiang Shanshui go up and down completely randomly.

Pair Corralation between Shenzhen New and Jiujiang Shanshui

Assuming the 90 days trading horizon Shenzhen New Nanshan is expected to under-perform the Jiujiang Shanshui. But the stock apears to be less risky and, when comparing its historical volatility, Shenzhen New Nanshan is 1.09 times less risky than Jiujiang Shanshui. The stock trades about -0.23 of its potential returns per unit of risk. The Jiujiang Shanshui Technology is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,567  in Jiujiang Shanshui Technology on October 26, 2024 and sell it today you would lose (22.00) from holding Jiujiang Shanshui Technology or give up 1.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Shenzhen New Nanshan  vs.  Jiujiang Shanshui Technology

Shenzhen New Nanshan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen New Nanshan 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Jiujiang Shanshui

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shenzhen New and Jiujiang Shanshui

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

The idea behind Shenzhen New Nanshan and Jiujiang Shanshui 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.