Correlation Between Nanxing Furniture and Shenzhen

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

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

Diversification Opportunities for Nanxing Furniture and Shenzhen

0.39

Correlation Coefficient

Nanxing Furniture  Shenzhen

Weak diversification

The 3 months correlation between Nanxing and Shenzhen is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Nanxing Furniture Machinery and Shenzhen AV Display Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen AV Display and Nanxing Furniture 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 Nanxing Furniture Machinery are associated (or correlated) with Shenzhen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen AV Display has no effect on the direction of Nanxing Furniture i.e., Nanxing Furniture and Shenzhen go up and down completely randomly.

Pair Corralation between Nanxing Furniture and Shenzhen

Assuming the 90 days trading horizon Nanxing Furniture Machinery is expected to under-perform the Shenzhen. In addition to that, Nanxing Furniture is 1.01 times more volatile than Shenzhen AV Display Co. It trades about -0.19 of its total potential returns per unit of risk. Shenzhen AV Display Co is currently generating about -0.13 per unit of volatility. If you would invest  3,362  in Shenzhen AV Display Co on October 11, 2024 and sell it today you would lose (329.00) from holding Shenzhen AV Display Co or give up 9.79% of portfolio value over 90 days.

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

Nanxing Furniture Machinery  vs.  Shenzhen AV Display Co

Nanxing Furniture

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nanxing Furniture Machinery are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanxing Furniture sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen AV Display

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen AV Display Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shenzhen is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nanxing Furniture and Shenzhen

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

The idea behind Nanxing Furniture Machinery and Shenzhen AV Display 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.