Correlation Between Shenzhen Zhongzhuang and Guangdong Jinming

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

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

Diversification Opportunities for Shenzhen Zhongzhuang and Guangdong Jinming

0.75

Correlation Coefficient

Shenzhen Zhongzhuang  Guangdong Jinming

Poor diversification

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

Pair Corralation between Shenzhen Zhongzhuang and Guangdong Jinming

Assuming the 90 days trading horizon Shenzhen Zhongzhuang Construction is expected to generate 0.68 times more return on investment than Guangdong Jinming. However, Shenzhen Zhongzhuang Construction is 1.48 times less risky than Guangdong Jinming. It trades about 0.45 of its potential returns per unit of risk. Guangdong Jinming Machinery is currently generating about 0.19 per unit of risk. If you would invest  193.00  in Shenzhen Zhongzhuang Construction on September 15, 2024 and sell it today you would earn a total of  242.00  from holding Shenzhen Zhongzhuang Construction or generate 125.39% return on investment over 90 days.

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

Shenzhen Zhongzhuang Construct  vs.  Guangdong Jinming Machinery

Shenzhen Zhongzhuang

Risk-Adjusted Performance

35 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Zhongzhuang Construction are ranked lower than 35 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Zhongzhuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangdong Jinming

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Jinming Machinery are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Jinming sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Zhongzhuang and Guangdong Jinming

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

The idea behind Shenzhen Zhongzhuang Construction and Guangdong Jinming Machinery 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.