Correlation Between Shenzhen Kexin and Wuhan Xianglong

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

By analyzing existing cross correlation between Shenzhen Kexin Communication and Wuhan Xianglong Power, you can compare the effects of market volatilities on Shenzhen Kexin and Wuhan Xianglong 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 Kexin with a short position of Wuhan Xianglong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Kexin and Wuhan Xianglong.

Diversification Opportunities for Shenzhen Kexin and Wuhan Xianglong

0.72

Correlation Coefficient

Shenzhen Kexin  Wuhan Xianglong

Poor diversification

The 3 months correlation between Shenzhen and Wuhan is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Kexin Communication and Wuhan Xianglong Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wuhan Xianglong Power and Shenzhen Kexin 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 Kexin Communication are associated (or correlated) with Wuhan Xianglong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wuhan Xianglong Power has no effect on the direction of Shenzhen Kexin i.e., Shenzhen Kexin and Wuhan Xianglong go up and down completely randomly.

Pair Corralation between Shenzhen Kexin and Wuhan Xianglong

Assuming the 90 days trading horizon Shenzhen Kexin Communication is expected to under-perform the Wuhan Xianglong. But the stock apears to be less risky and, when comparing its historical volatility, Shenzhen Kexin Communication is 1.15 times less risky than Wuhan Xianglong. The stock trades about -0.08 of its potential returns per unit of risk. The Wuhan Xianglong Power is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,178  in Wuhan Xianglong Power on November 20, 2024 and sell it today you would lose (184.00) from holding Wuhan Xianglong Power or give up 15.62% of portfolio value over 90 days.

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

Shenzhen Kexin Communication  vs.  Wuhan Xianglong Power

Shenzhen Kexin Commu

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shenzhen Kexin Communication has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Wuhan Xianglong Power

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wuhan Xianglong Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shenzhen Kexin and Wuhan Xianglong

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

The idea behind Shenzhen Kexin Communication and Wuhan Xianglong Power 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.