Correlation Between Shenzhen Changfang and Jiangsu Xinning

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

By analyzing existing cross correlation between Shenzhen Changfang Light and Jiangsu Xinning Modern, you can compare the effects of market volatilities on Shenzhen Changfang and Jiangsu Xinning 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 Changfang with a short position of Jiangsu Xinning. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Changfang and Jiangsu Xinning.

Diversification Opportunities for Shenzhen Changfang and Jiangsu Xinning

0.93

Correlation Coefficient

Shenzhen Changfang  Jiangsu Xinning

Almost no diversification

The 3 months correlation between Shenzhen and Jiangsu is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Changfang Light and Jiangsu Xinning Modern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Xinning Modern and Shenzhen Changfang 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 Changfang Light are associated (or correlated) with Jiangsu Xinning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Xinning Modern has no effect on the direction of Shenzhen Changfang i.e., Shenzhen Changfang and Jiangsu Xinning go up and down completely randomly.

Pair Corralation between Shenzhen Changfang and Jiangsu Xinning

Assuming the 90 days trading horizon Shenzhen Changfang is expected to generate 1.34 times less return on investment than Jiangsu Xinning. But when comparing it to its historical volatility, Shenzhen Changfang Light is 1.1 times less risky than Jiangsu Xinning. It trades about 0.18 of its potential returns per unit of risk. Jiangsu Xinning Modern is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  231.00  in Jiangsu Xinning Modern on September 4, 2024 and sell it today you would earn a total of  156.00  from holding Jiangsu Xinning Modern or generate 67.53% return on investment over 90 days.

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

Shenzhen Changfang Light  vs.  Jiangsu Xinning Modern

Shenzhen Changfang Light

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Changfang Light are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Changfang sustained solid returns over the last few months and may actually be approaching a breakup point.

Jiangsu Xinning Modern

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangsu Xinning Modern are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangsu Xinning sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Changfang and Jiangsu Xinning

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

The idea behind Shenzhen Changfang Light and Jiangsu Xinning Modern 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.