Correlation Between Guangdong Transtek and Shenzhen Zhongzhuang

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

By analyzing existing cross correlation between Guangdong Transtek Medical and Shenzhen Zhongzhuang Construction, you can compare the effects of market volatilities on Guangdong Transtek and Shenzhen Zhongzhuang 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 Guangdong Transtek with a short position of Shenzhen Zhongzhuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Transtek and Shenzhen Zhongzhuang.

Diversification Opportunities for Guangdong Transtek and Shenzhen Zhongzhuang

0.71

Correlation Coefficient

Guangdong Transtek  Shenzhen Zhongzhuang

Poor diversification

The 3 months correlation between Guangdong and Shenzhen is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Transtek Medical and Shenzhen Zhongzhuang Construct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Zhongzhuang and Guangdong Transtek 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 Guangdong Transtek Medical are associated (or correlated) with Shenzhen Zhongzhuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Zhongzhuang has no effect on the direction of Guangdong Transtek i.e., Guangdong Transtek and Shenzhen Zhongzhuang go up and down completely randomly.

Pair Corralation between Guangdong Transtek and Shenzhen Zhongzhuang

Assuming the 90 days trading horizon Guangdong Transtek Medical is expected to generate 1.25 times more return on investment than Shenzhen Zhongzhuang. However, Guangdong Transtek is 1.25 times more volatile than Shenzhen Zhongzhuang Construction. It trades about 0.04 of its potential returns per unit of risk. Shenzhen Zhongzhuang Construction is currently generating about 0.0 per unit of risk. If you would invest  953.00  in Guangdong Transtek Medical on October 10, 2024 and sell it today you would earn a total of  380.00  from holding Guangdong Transtek Medical or generate 39.87% return on investment over 90 days.

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

Guangdong Transtek Medical  vs.  Shenzhen Zhongzhuang Construct

Guangdong Transtek

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Transtek Medical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Transtek may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Shenzhen Zhongzhuang

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Zhongzhuang Construction are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Zhongzhuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Transtek and Shenzhen Zhongzhuang

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

The idea behind Guangdong Transtek Medical and Shenzhen Zhongzhuang Construction 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.