Correlation Between Shenzhen Mindray and Zhejiang Orient

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

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

Diversification Opportunities for Shenzhen Mindray and Zhejiang Orient

0.91

Correlation Coefficient

Shenzhen Mindray  Zhejiang Orient

Almost no diversification

The 3 months correlation between Shenzhen and Zhejiang is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Mindray Bio Medical and Zhejiang Orient Gene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Orient Gene and Shenzhen Mindray 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 Mindray Bio Medical are associated (or correlated) with Zhejiang Orient. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Orient Gene has no effect on the direction of Shenzhen Mindray i.e., Shenzhen Mindray and Zhejiang Orient go up and down completely randomly.

Pair Corralation between Shenzhen Mindray and Zhejiang Orient

Assuming the 90 days trading horizon Shenzhen Mindray Bio Medical is expected to generate 0.72 times more return on investment than Zhejiang Orient. However, Shenzhen Mindray Bio Medical is 1.39 times less risky than Zhejiang Orient. It trades about -0.03 of its potential returns per unit of risk. Zhejiang Orient Gene is currently generating about -0.05 per unit of risk. If you would invest  26,987  in Shenzhen Mindray Bio Medical on November 19, 2024 and sell it today you would lose (1,103) from holding Shenzhen Mindray Bio Medical or give up 4.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.31%
Values	Daily Returns

Shenzhen Mindray Bio Medical  vs.  Zhejiang Orient Gene

Shenzhen Mindray Bio

Risk-Adjusted Performance

Very Weak

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

Zhejiang Orient Gene

Risk-Adjusted Performance

Very Weak

Over the last 90 days Zhejiang Orient Gene 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.

Pair Trading with Shenzhen Mindray and Zhejiang Orient

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

The idea behind Shenzhen Mindray Bio Medical and Zhejiang Orient Gene 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.