Correlation Between Anhui Jinhe and Shenzhen Shenbao

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

By analyzing existing cross correlation between Anhui Jinhe Industrial and Shenzhen Shenbao Industrial, you can compare the effects of market volatilities on Anhui Jinhe and Shenzhen Shenbao 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 Anhui Jinhe with a short position of Shenzhen Shenbao. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anhui Jinhe and Shenzhen Shenbao.

Diversification Opportunities for Anhui Jinhe and Shenzhen Shenbao

-0.07

Correlation Coefficient

Anhui Jinhe  Shenzhen Shenbao

Good diversification

The 3 months correlation between Anhui and Shenzhen is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Jinhe Industrial and Shenzhen Shenbao Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Shenbao Ind and Anhui Jinhe 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 Anhui Jinhe Industrial are associated (or correlated) with Shenzhen Shenbao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Shenbao Ind has no effect on the direction of Anhui Jinhe i.e., Anhui Jinhe and Shenzhen Shenbao go up and down completely randomly.

Pair Corralation between Anhui Jinhe and Shenzhen Shenbao

Assuming the 90 days trading horizon Anhui Jinhe Industrial is expected to generate 1.59 times more return on investment than Shenzhen Shenbao. However, Anhui Jinhe is 1.59 times more volatile than Shenzhen Shenbao Industrial. It trades about 0.1 of its potential returns per unit of risk. Shenzhen Shenbao Industrial is currently generating about -0.02 per unit of risk. If you would invest  2,305  in Anhui Jinhe Industrial on December 25, 2024 and sell it today you would earn a total of  258.00  from holding Anhui Jinhe Industrial or generate 11.19% return on investment over 90 days.

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

Anhui Jinhe Industrial  vs.  Shenzhen Shenbao Industrial

Anhui Jinhe Industrial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Jinhe Industrial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Jinhe sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Shenbao Ind

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shenzhen Shenbao Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shenzhen Shenbao is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Anhui Jinhe and Shenzhen Shenbao

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

The idea behind Anhui Jinhe Industrial and Shenzhen Shenbao Industrial 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.