Correlation Between Shenzhen Bingchuan and Sichuan Road

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

Diversification Opportunities for Shenzhen Bingchuan and Sichuan Road

0.7

Correlation Coefficient

Shenzhen Bingchuan  Sichuan Road

Poor diversification

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

Pair Corralation between Shenzhen Bingchuan and Sichuan Road

Assuming the 90 days trading horizon Shenzhen Bingchuan Network is expected to generate 1.36 times more return on investment than Sichuan Road. However, Shenzhen Bingchuan is 1.36 times more volatile than Sichuan Road Bridge. It trades about 0.26 of its potential returns per unit of risk. Sichuan Road Bridge is currently generating about 0.16 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	Significant
Accuracy	98.28%
Values	Daily Returns

Shenzhen Bingchuan Network  vs.  Sichuan Road Bridge

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.

Sichuan Road Bridge

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Road Bridge are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Road sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Bingchuan and Sichuan Road

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

The idea behind Shenzhen Bingchuan Network and Sichuan Road Bridge 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.