Correlation Between Shenzhen Glory and Zhongfu Information

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Can any of the company-specific risk be diversified away by investing in both Shenzhen Glory and Zhongfu Information 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 Zhongfu Information 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 Zhongfu Information, you can compare the effects of market volatilities on Shenzhen Glory and Zhongfu Information 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 Zhongfu Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Glory and Zhongfu Information.

Diversification Opportunities for Shenzhen Glory and Zhongfu Information

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between Shenzhen and Zhongfu is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Glory Medical and Zhongfu Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongfu Information 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 Zhongfu Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongfu Information has no effect on the direction of Shenzhen Glory i.e., Shenzhen Glory and Zhongfu Information go up and down completely randomly.

Pair Corralation between Shenzhen Glory and Zhongfu Information

Assuming the 90 days trading horizon Shenzhen Glory is expected to generate 1.2 times less return on investment than Zhongfu Information. But when comparing it to its historical volatility, Shenzhen Glory Medical is 1.55 times less risky than Zhongfu Information. It trades about 0.03 of its potential returns per unit of risk. Zhongfu Information is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,500  in Zhongfu Information on October 11, 2024 and sell it today you would earn a total of  14.00  from holding Zhongfu Information or generate 0.93% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Shenzhen Glory Medical  vs.  Zhongfu Information

 Performance 
       Timeline  
Shenzhen Glory Medical 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Glory Medical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shenzhen Glory is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Zhongfu Information 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Zhongfu Information are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongfu Information may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Shenzhen Glory and Zhongfu Information Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Shenzhen Glory and Zhongfu Information

The main advantage of trading using opposite Shenzhen Glory and Zhongfu Information positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shenzhen Glory position performs unexpectedly, Zhongfu Information 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 Zhongfu Information will offset losses from the drop in Zhongfu Information's long position.
The idea behind Shenzhen Glory Medical and Zhongfu Information 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.
Check out your portfolio center.
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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