Correlation Between Shenzhen Bingchuan and Shandong Iron

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

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

Diversification Opportunities for Shenzhen Bingchuan and Shandong Iron

0.81

Correlation Coefficient

Shenzhen Bingchuan  Shandong Iron

Very poor diversification

The 3 months correlation between Shenzhen and Shandong is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Bingchuan Network and Shandong Iron and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Iron and Shenzhen Bingchuan 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 Bingchuan Network are associated (or correlated) with Shandong Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Iron has no effect on the direction of Shenzhen Bingchuan i.e., Shenzhen Bingchuan and Shandong Iron go up and down completely randomly.

Pair Corralation between Shenzhen Bingchuan and Shandong Iron

Assuming the 90 days trading horizon Shenzhen Bingchuan Network is expected to generate 1.59 times more return on investment than Shandong Iron. However, Shenzhen Bingchuan is 1.59 times more volatile than Shandong Iron and. It trades about 0.26 of its potential returns per unit of risk. Shandong Iron and is currently generating about 0.2 per unit of risk. If you would invest  1,303  in Shenzhen Bingchuan Network on September 14, 2024 and sell it today you would earn a total of  1,242  from holding Shenzhen Bingchuan Network or generate 95.32% return on investment over 90 days.

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

Shenzhen Bingchuan Network  vs.  Shandong Iron and

Shenzhen Bingchuan

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Bingchuan Network are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Bingchuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Iron

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Iron and are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Iron sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Bingchuan and Shandong Iron

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

The idea behind Shenzhen Bingchuan Network and Shandong Iron and 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.