Correlation Between Shenyang Blue and Shenzhen Silver

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

By analyzing existing cross correlation between Shenyang Blue Silver and Shenzhen Silver Basis, you can compare the effects of market volatilities on Shenyang Blue and Shenzhen Silver 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 Shenyang Blue with a short position of Shenzhen Silver. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenyang Blue and Shenzhen Silver.

Diversification Opportunities for Shenyang Blue and Shenzhen Silver

0.8

Correlation Coefficient

Shenyang Blue  Shenzhen Silver

Very poor diversification

The 3 months correlation between Shenyang and Shenzhen is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Shenyang Blue Silver and Shenzhen Silver Basis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Silver Basis and Shenyang Blue 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 Shenyang Blue Silver are associated (or correlated) with Shenzhen Silver. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Silver Basis has no effect on the direction of Shenyang Blue i.e., Shenyang Blue and Shenzhen Silver go up and down completely randomly.

Pair Corralation between Shenyang Blue and Shenzhen Silver

Assuming the 90 days trading horizon Shenyang Blue Silver is expected to under-perform the Shenzhen Silver. But the stock apears to be less risky and, when comparing its historical volatility, Shenyang Blue Silver is 1.04 times less risky than Shenzhen Silver. The stock trades about -0.02 of its potential returns per unit of risk. The Shenzhen Silver Basis is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  983.00  in Shenzhen Silver Basis on December 27, 2024 and sell it today you would lose (41.00) from holding Shenzhen Silver Basis or give up 4.17% of portfolio value over 90 days.

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

Shenyang Blue Silver  vs.  Shenzhen Silver Basis

Shenyang Blue Silver

Risk-Adjusted Performance

Very Weak

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

Shenzhen Silver Basis

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Shenyang Blue and Shenzhen Silver

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

The idea behind Shenyang Blue Silver and Shenzhen Silver Basis 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.