Correlation Between Shenzhen Sunway and Shanghai Phichem

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

Diversification Opportunities for Shenzhen Sunway and Shanghai Phichem

0.7

Correlation Coefficient

Shenzhen Sunway  Shanghai Phichem

Poor diversification

The 3 months correlation between Shenzhen and Shanghai is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Sunway Communication and Shanghai Phichem Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Phichem Material 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 Shanghai Phichem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Phichem Material has no effect on the direction of Shenzhen Sunway i.e., Shenzhen Sunway and Shanghai Phichem go up and down completely randomly.

Pair Corralation between Shenzhen Sunway and Shanghai Phichem

Assuming the 90 days trading horizon Shenzhen Sunway Communication is expected to generate 1.32 times more return on investment than Shanghai Phichem. However, Shenzhen Sunway is 1.32 times more volatile than Shanghai Phichem Material. It trades about -0.22 of its potential returns per unit of risk. Shanghai Phichem Material is currently generating about -0.36 per unit of risk. If you would invest  2,635  in Shenzhen Sunway Communication on October 11, 2024 and sell it today you would lose (345.00) from holding Shenzhen Sunway Communication or give up 13.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Shenzhen Sunway Communication  vs.  Shanghai Phichem Material

Shenzhen Sunway Comm

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Sunway Communication are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Sunway may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Shanghai Phichem Material

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Phichem Material are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Phichem may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shenzhen Sunway and Shanghai Phichem

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

The idea behind Shenzhen Sunway Communication and Shanghai Phichem Material 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.

Check out your portfolio center.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..