Correlation Between Shenzhen RoadRover and Sanan Optoelectronics

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

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

Diversification Opportunities for Shenzhen RoadRover and Sanan Optoelectronics

0.75

Correlation Coefficient

Shenzhen RoadRover  Sanan Optoelectronics

Poor diversification

The 3 months correlation between Shenzhen and Sanan is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen RoadRover Technology and Sanan Optoelectronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanan Optoelectronics and Shenzhen RoadRover 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 RoadRover Technology are associated (or correlated) with Sanan Optoelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sanan Optoelectronics has no effect on the direction of Shenzhen RoadRover i.e., Shenzhen RoadRover and Sanan Optoelectronics go up and down completely randomly.

Pair Corralation between Shenzhen RoadRover and Sanan Optoelectronics

Assuming the 90 days trading horizon Shenzhen RoadRover Technology is expected to generate 1.28 times more return on investment than Sanan Optoelectronics. However, Shenzhen RoadRover is 1.28 times more volatile than Sanan Optoelectronics Co. It trades about 0.01 of its potential returns per unit of risk. Sanan Optoelectronics Co is currently generating about -0.04 per unit of risk. If you would invest  2,260  in Shenzhen RoadRover Technology on December 30, 2024 and sell it today you would lose (9.00) from holding Shenzhen RoadRover Technology or give up 0.4% of portfolio value over 90 days.

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

Shenzhen RoadRover Technology  vs.  Sanan Optoelectronics Co

Shenzhen RoadRover

Risk-Adjusted Performance

Very Weak

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

Sanan Optoelectronics

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Shenzhen RoadRover and Sanan Optoelectronics

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

The idea behind Shenzhen RoadRover Technology and Sanan Optoelectronics 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.