Correlation Between Shenzhen Bingchuan and China Satellite

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

Diversification Opportunities for Shenzhen Bingchuan and China Satellite

0.63

Correlation Coefficient

Shenzhen Bingchuan  China Satellite

Poor diversification

The 3 months correlation between Shenzhen and China is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Bingchuan Network and China Satellite Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Satellite Comm 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 China Satellite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Satellite Comm has no effect on the direction of Shenzhen Bingchuan i.e., Shenzhen Bingchuan and China Satellite go up and down completely randomly.

Pair Corralation between Shenzhen Bingchuan and China Satellite

Assuming the 90 days trading horizon Shenzhen Bingchuan Network is expected to generate 1.21 times more return on investment than China Satellite. However, Shenzhen Bingchuan is 1.21 times more volatile than China Satellite Communications. It trades about -0.01 of its potential returns per unit of risk. China Satellite Communications is currently generating about -0.19 per unit of risk. If you would invest  2,094  in Shenzhen Bingchuan Network on October 22, 2024 and sell it today you would lose (23.00) from holding Shenzhen Bingchuan Network or give up 1.1% of portfolio value over 90 days.

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

Shenzhen Bingchuan Network  vs.  China Satellite Communications

Shenzhen Bingchuan

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Bingchuan Network are ranked lower than 5 (%) 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.

China Satellite Comm

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Satellite Communications are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Satellite sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Bingchuan and China Satellite

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

The idea behind Shenzhen Bingchuan Network and China Satellite Communications 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.