Correlation Between Suzhou Dongshan and Tianjin Hi

Can any of the company-specific risk be diversified away by investing in both Suzhou Dongshan and Tianjin Hi 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 Tianjin Hi 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 Tianjin Hi Tech Development, you can compare the effects of market volatilities on Suzhou Dongshan and Tianjin Hi 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 Tianjin Hi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Suzhou Dongshan and Tianjin Hi.

Diversification Opportunities for Suzhou Dongshan and Tianjin Hi

0.27

Correlation Coefficient

Suzhou Dongshan  Tianjin Hi

Modest diversification

The 3 months correlation between Suzhou and Tianjin is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Suzhou Dongshan Precision and Tianjin Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Hi Tech 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 Tianjin Hi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Hi Tech has no effect on the direction of Suzhou Dongshan i.e., Suzhou Dongshan and Tianjin Hi go up and down completely randomly.

Pair Corralation between Suzhou Dongshan and Tianjin Hi

Assuming the 90 days trading horizon Suzhou Dongshan Precision is expected to generate 1.07 times more return on investment than Tianjin Hi. However, Suzhou Dongshan is 1.07 times more volatile than Tianjin Hi Tech Development. It trades about 0.15 of its potential returns per unit of risk. Tianjin Hi Tech Development is currently generating about 0.05 per unit of risk. If you would invest  2,180  in Suzhou Dongshan Precision on October 11, 2024 and sell it today you would earn a total of  900.00  from holding Suzhou Dongshan Precision or generate 41.28% return on investment over 90 days.

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

Suzhou Dongshan Precision  vs.  Tianjin Hi Tech Development

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.

Tianjin Hi Tech

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Hi Tech Development are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Hi sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Suzhou Dongshan and Tianjin Hi

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

The idea behind Suzhou Dongshan Precision and Tianjin Hi Tech Development 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.