Correlation Between Sichuan Fulin and Guangdong Shenglu

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

By analyzing existing cross correlation between Sichuan Fulin Transportation and Guangdong Shenglu Telecommunication, you can compare the effects of market volatilities on Sichuan Fulin and Guangdong Shenglu 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 Sichuan Fulin with a short position of Guangdong Shenglu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Fulin and Guangdong Shenglu.

Diversification Opportunities for Sichuan Fulin and Guangdong Shenglu

0.36

Correlation Coefficient

Sichuan Fulin  Guangdong Shenglu

Weak diversification

The 3 months correlation between Sichuan and Guangdong is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Fulin Transportation and Guangdong Shenglu Telecommunic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Shenglu and Sichuan Fulin 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 Sichuan Fulin Transportation are associated (or correlated) with Guangdong Shenglu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Shenglu has no effect on the direction of Sichuan Fulin i.e., Sichuan Fulin and Guangdong Shenglu go up and down completely randomly.

Pair Corralation between Sichuan Fulin and Guangdong Shenglu

Assuming the 90 days trading horizon Sichuan Fulin Transportation is expected to generate 1.16 times more return on investment than Guangdong Shenglu. However, Sichuan Fulin is 1.16 times more volatile than Guangdong Shenglu Telecommunication. It trades about 0.06 of its potential returns per unit of risk. Guangdong Shenglu Telecommunication is currently generating about -0.01 per unit of risk. If you would invest  726.00  in Sichuan Fulin Transportation on December 26, 2024 and sell it today you would earn a total of  53.00  from holding Sichuan Fulin Transportation or generate 7.3% return on investment over 90 days.

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

Sichuan Fulin Transportation  vs.  Guangdong Shenglu Telecommunic

Sichuan Fulin Transp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Fulin Transportation are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Fulin may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Guangdong Shenglu

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Sichuan Fulin and Guangdong Shenglu

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

The idea behind Sichuan Fulin Transportation and Guangdong Shenglu Telecommunication 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.