Correlation Between Shenzhen Glory and Sunwave Communications

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

By analyzing existing cross correlation between Shenzhen Glory Medical and Sunwave Communications Co, you can compare the effects of market volatilities on Shenzhen Glory and Sunwave Communications 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 Glory with a short position of Sunwave Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Glory and Sunwave Communications.

Diversification Opportunities for Shenzhen Glory and Sunwave Communications

0.83

Correlation Coefficient

Shenzhen Glory  Sunwave Communications

Very poor diversification

The 3 months correlation between Shenzhen and Sunwave is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Glory Medical and Sunwave Communications Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunwave Communications and Shenzhen Glory 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 Glory Medical are associated (or correlated) with Sunwave Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunwave Communications has no effect on the direction of Shenzhen Glory i.e., Shenzhen Glory and Sunwave Communications go up and down completely randomly.

Pair Corralation between Shenzhen Glory and Sunwave Communications

Assuming the 90 days trading horizon Shenzhen Glory is expected to generate 5.9 times less return on investment than Sunwave Communications. But when comparing it to its historical volatility, Shenzhen Glory Medical is 1.82 times less risky than Sunwave Communications. It trades about 0.1 of its potential returns per unit of risk. Sunwave Communications Co is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  618.00  in Sunwave Communications Co on September 21, 2024 and sell it today you would earn a total of  308.00  from holding Sunwave Communications Co or generate 49.84% return on investment over 90 days.

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

Shenzhen Glory Medical  vs.  Sunwave Communications Co

Shenzhen Glory Medical

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Glory Medical are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Glory sustained solid returns over the last few months and may actually be approaching a breakup point.

Sunwave Communications

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sunwave Communications Co are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sunwave Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Glory and Sunwave Communications

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

The idea behind Shenzhen Glory Medical and Sunwave Communications Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.