Correlation Between Guangdong Shenglu and Shenzhen Fortune

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

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

Diversification Opportunities for Guangdong Shenglu and Shenzhen Fortune

0.6

Correlation Coefficient

Guangdong Shenglu  Shenzhen Fortune

Poor diversification

The 3 months correlation between Guangdong and Shenzhen is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Shenglu Telecommunic and Shenzhen Fortune Trend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Fortune Trend and Guangdong Shenglu 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 Guangdong Shenglu Telecommunication are associated (or correlated) with Shenzhen Fortune. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Fortune Trend has no effect on the direction of Guangdong Shenglu i.e., Guangdong Shenglu and Shenzhen Fortune go up and down completely randomly.

Pair Corralation between Guangdong Shenglu and Shenzhen Fortune

Assuming the 90 days trading horizon Guangdong Shenglu Telecommunication is expected to under-perform the Shenzhen Fortune. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Shenglu Telecommunication is 1.56 times less risky than Shenzhen Fortune. The stock trades about -0.07 of its potential returns per unit of risk. The Shenzhen Fortune Trend is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  15,092  in Shenzhen Fortune Trend on October 24, 2024 and sell it today you would earn a total of  1,208  from holding Shenzhen Fortune Trend or generate 8.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Guangdong Shenglu Telecommunic  vs.  Shenzhen Fortune Trend

Guangdong Shenglu

Risk-Adjusted Performance

0 of 100

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 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.

Shenzhen Fortune Trend

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Fortune Trend are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Fortune sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Shenglu and Shenzhen Fortune

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

The idea behind Guangdong Shenglu Telecommunication and Shenzhen Fortune Trend 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.