Correlation Between Hangzhou Prevail and Shenzhen Clou

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

By analyzing existing cross correlation between Hangzhou Prevail Optoelectronic and Shenzhen Clou Electronics, you can compare the effects of market volatilities on Hangzhou Prevail and Shenzhen Clou 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 Hangzhou Prevail with a short position of Shenzhen Clou. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hangzhou Prevail and Shenzhen Clou.

Diversification Opportunities for Hangzhou Prevail and Shenzhen Clou

0.73

Correlation Coefficient

Hangzhou Prevail  Shenzhen Clou

Poor diversification

The 3 months correlation between Hangzhou and Shenzhen is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Hangzhou Prevail Optoelectroni and Shenzhen Clou Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Clou Electronics and Hangzhou Prevail 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 Hangzhou Prevail Optoelectronic are associated (or correlated) with Shenzhen Clou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Clou Electronics has no effect on the direction of Hangzhou Prevail i.e., Hangzhou Prevail and Shenzhen Clou go up and down completely randomly.

Pair Corralation between Hangzhou Prevail and Shenzhen Clou

Assuming the 90 days trading horizon Hangzhou Prevail Optoelectronic is expected to under-perform the Shenzhen Clou. But the stock apears to be less risky and, when comparing its historical volatility, Hangzhou Prevail Optoelectronic is 1.05 times less risky than Shenzhen Clou. The stock trades about -0.04 of its potential returns per unit of risk. The Shenzhen Clou Electronics is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  451.00  in Shenzhen Clou Electronics on November 20, 2024 and sell it today you would lose (25.00) from holding Shenzhen Clou Electronics or give up 5.54% of portfolio value over 90 days.

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

Hangzhou Prevail Optoelectroni  vs.  Shenzhen Clou Electronics

Hangzhou Prevail Opt

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hangzhou Prevail Optoelectronic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shenzhen Clou Electronics

Risk-Adjusted Performance

Weak

Over the last 90 days Shenzhen Clou Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shenzhen Clou is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hangzhou Prevail and Shenzhen Clou

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

The idea behind Hangzhou Prevail Optoelectronic and Shenzhen Clou Electronics 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.