Correlation Between Shenzhen Zhongzhuang and Anhui Huaren

Can any of the company-specific risk be diversified away by investing in both Shenzhen Zhongzhuang and Anhui Huaren 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 Anhui Huaren 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 Anhui Huaren Health, you can compare the effects of market volatilities on Shenzhen Zhongzhuang and Anhui Huaren 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 Anhui Huaren. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Zhongzhuang and Anhui Huaren.

Diversification Opportunities for Shenzhen Zhongzhuang and Anhui Huaren

0.2

Correlation Coefficient

Shenzhen Zhongzhuang  Anhui Huaren

Modest diversification

The 3 months correlation between Shenzhen and Anhui is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Zhongzhuang Construct and Anhui Huaren Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Huaren Health 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 Anhui Huaren. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Huaren Health has no effect on the direction of Shenzhen Zhongzhuang i.e., Shenzhen Zhongzhuang and Anhui Huaren go up and down completely randomly.

Pair Corralation between Shenzhen Zhongzhuang and Anhui Huaren

Assuming the 90 days trading horizon Shenzhen Zhongzhuang Construction is expected to under-perform the Anhui Huaren. But the stock apears to be less risky and, when comparing its historical volatility, Shenzhen Zhongzhuang Construction is 1.02 times less risky than Anhui Huaren. The stock trades about -0.23 of its potential returns per unit of risk. The Anhui Huaren Health is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  1,215  in Anhui Huaren Health on October 7, 2024 and sell it today you would lose (172.00) from holding Anhui Huaren Health or give up 14.16% of portfolio value over 90 days.

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

Shenzhen Zhongzhuang Construct  vs.  Anhui Huaren Health

Shenzhen Zhongzhuang

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Zhongzhuang Construction are ranked lower than 25 (%) 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.

Anhui Huaren Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Anhui Huaren Health 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 Shenzhen Zhongzhuang and Anhui Huaren

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

The idea behind Shenzhen Zhongzhuang Construction and Anhui Huaren Health 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.