Correlation Between Guangdong Qunxing and Shenzhen SDG

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

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

Diversification Opportunities for Guangdong Qunxing and Shenzhen SDG

-0.58

Correlation Coefficient

Guangdong Qunxing  Shenzhen SDG

Excellent diversification

The 3 months correlation between Guangdong and Shenzhen is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Qunxing Toys and Shenzhen SDG Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen SDG Service and Guangdong Qunxing 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 Qunxing Toys are associated (or correlated) with Shenzhen SDG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen SDG Service has no effect on the direction of Guangdong Qunxing i.e., Guangdong Qunxing and Shenzhen SDG go up and down completely randomly.

Pair Corralation between Guangdong Qunxing and Shenzhen SDG

Assuming the 90 days trading horizon Guangdong Qunxing Toys is expected to generate 1.81 times more return on investment than Shenzhen SDG. However, Guangdong Qunxing is 1.81 times more volatile than Shenzhen SDG Service. It trades about -0.13 of its potential returns per unit of risk. Shenzhen SDG Service is currently generating about -0.57 per unit of risk. If you would invest  797.00  in Guangdong Qunxing Toys on October 13, 2024 and sell it today you would lose (112.00) from holding Guangdong Qunxing Toys or give up 14.05% of portfolio value over 90 days.

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

Guangdong Qunxing Toys  vs.  Shenzhen SDG Service

Guangdong Qunxing Toys

Risk-Adjusted Performance

7 of 100

OK

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

Shenzhen SDG Service

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen SDG Service 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.

Pair Trading with Guangdong Qunxing and Shenzhen SDG

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

The idea behind Guangdong Qunxing Toys and Shenzhen SDG Service 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.