Correlation Between Suzhou Dongshan and Shenzhen RoadRover

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

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

Diversification Opportunities for Suzhou Dongshan and Shenzhen RoadRover

0.7

Correlation Coefficient

Suzhou Dongshan  Shenzhen RoadRover

Poor diversification

The 3 months correlation between Suzhou and Shenzhen is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Suzhou Dongshan Precision and Shenzhen RoadRover Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen RoadRover and Suzhou Dongshan 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 Suzhou Dongshan Precision are associated (or correlated) with Shenzhen RoadRover. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen RoadRover has no effect on the direction of Suzhou Dongshan i.e., Suzhou Dongshan and Shenzhen RoadRover go up and down completely randomly.

Pair Corralation between Suzhou Dongshan and Shenzhen RoadRover

Assuming the 90 days trading horizon Suzhou Dongshan Precision is expected to generate 1.64 times more return on investment than Shenzhen RoadRover. However, Suzhou Dongshan is 1.64 times more volatile than Shenzhen RoadRover Technology. It trades about 0.07 of its potential returns per unit of risk. Shenzhen RoadRover Technology is currently generating about -0.06 per unit of risk. If you would invest  2,545  in Suzhou Dongshan Precision on September 19, 2024 and sell it today you would earn a total of  211.00  from holding Suzhou Dongshan Precision or generate 8.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.67%
Values	Daily Returns

Suzhou Dongshan Precision  vs.  Shenzhen RoadRover Technology

Suzhou Dongshan Precision

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Suzhou Dongshan Precision are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Suzhou Dongshan sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen RoadRover

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen RoadRover Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen RoadRover sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Suzhou Dongshan and Shenzhen RoadRover

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

The idea behind Suzhou Dongshan Precision and Shenzhen RoadRover 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 Transaction History module to view history of all your transactions and understand their impact on performance.