Correlation Between Chengdu Kanghua and Shenzhen Agricultural

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

By analyzing existing cross correlation between Chengdu Kanghua Biological and Shenzhen Agricultural Products, you can compare the effects of market volatilities on Chengdu Kanghua and Shenzhen Agricultural 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 Chengdu Kanghua with a short position of Shenzhen Agricultural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chengdu Kanghua and Shenzhen Agricultural.

Diversification Opportunities for Chengdu Kanghua and Shenzhen Agricultural

-0.49

Correlation Coefficient

Chengdu Kanghua  Shenzhen Agricultural

Very good diversification

The 3 months correlation between Chengdu and Shenzhen is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Chengdu Kanghua Biological and Shenzhen Agricultural Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Agricultural and Chengdu Kanghua 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 Chengdu Kanghua Biological are associated (or correlated) with Shenzhen Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Agricultural has no effect on the direction of Chengdu Kanghua i.e., Chengdu Kanghua and Shenzhen Agricultural go up and down completely randomly.

Pair Corralation between Chengdu Kanghua and Shenzhen Agricultural

Assuming the 90 days trading horizon Chengdu Kanghua Biological is expected to under-perform the Shenzhen Agricultural. In addition to that, Chengdu Kanghua is 1.3 times more volatile than Shenzhen Agricultural Products. It trades about -0.21 of its total potential returns per unit of risk. Shenzhen Agricultural Products is currently generating about 0.01 per unit of volatility. If you would invest  664.00  in Shenzhen Agricultural Products on October 5, 2024 and sell it today you would earn a total of  0.00  from holding Shenzhen Agricultural Products or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Chengdu Kanghua Biological  vs.  Shenzhen Agricultural Products

Chengdu Kanghua Biol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chengdu Kanghua Biological 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shenzhen Agricultural

Risk-Adjusted Performance

0 of 100

Insignificant

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

Pair Trading with Chengdu Kanghua and Shenzhen Agricultural

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

The idea behind Chengdu Kanghua Biological and Shenzhen Agricultural Products 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.