Correlation Between Shenzhen Sunway and Anhui Gujing

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

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

Diversification Opportunities for Shenzhen Sunway and Anhui Gujing

0.89

Correlation Coefficient

Shenzhen Sunway  Anhui Gujing

Very poor diversification

The 3 months correlation between Shenzhen and Anhui is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Sunway Communication and Anhui Gujing Distillery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Gujing Distillery and Shenzhen Sunway 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 Sunway Communication are associated (or correlated) with Anhui Gujing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Gujing Distillery has no effect on the direction of Shenzhen Sunway i.e., Shenzhen Sunway and Anhui Gujing go up and down completely randomly.

Pair Corralation between Shenzhen Sunway and Anhui Gujing

Assuming the 90 days trading horizon Shenzhen Sunway Communication is expected to under-perform the Anhui Gujing. In addition to that, Shenzhen Sunway is 1.05 times more volatile than Anhui Gujing Distillery. It trades about -0.1 of its total potential returns per unit of risk. Anhui Gujing Distillery is currently generating about -0.09 per unit of volatility. If you would invest  19,450  in Anhui Gujing Distillery on September 20, 2024 and sell it today you would lose (986.00) from holding Anhui Gujing Distillery or give up 5.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Shenzhen Sunway Communication  vs.  Anhui Gujing Distillery

Shenzhen Sunway Comm

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Sunway Communication are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Sunway sustained solid returns over the last few months and may actually be approaching a breakup point.

Anhui Gujing Distillery

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Gujing Distillery are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Gujing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Sunway and Anhui Gujing

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

The idea behind Shenzhen Sunway Communication and Anhui Gujing Distillery 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.