Correlation Between Shenzhen SDG and China Marine

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

By analyzing existing cross correlation between Shenzhen SDG Service and China Marine Information, you can compare the effects of market volatilities on Shenzhen SDG and China Marine 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 SDG with a short position of China Marine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen SDG and China Marine.

Diversification Opportunities for Shenzhen SDG and China Marine

0.74

Correlation Coefficient

Shenzhen SDG  China Marine

Poor diversification

The 3 months correlation between Shenzhen and China is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen SDG Service and China Marine Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Marine Information and Shenzhen SDG 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 SDG Service are associated (or correlated) with China Marine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Marine Information has no effect on the direction of Shenzhen SDG i.e., Shenzhen SDG and China Marine go up and down completely randomly.

Pair Corralation between Shenzhen SDG and China Marine

Assuming the 90 days trading horizon Shenzhen SDG Service is expected to generate 1.8 times more return on investment than China Marine. However, Shenzhen SDG is 1.8 times more volatile than China Marine Information. It trades about 0.05 of its potential returns per unit of risk. China Marine Information is currently generating about 0.03 per unit of risk. If you would invest  2,832  in Shenzhen SDG Service on September 26, 2024 and sell it today you would earn a total of  2,398  from holding Shenzhen SDG Service or generate 84.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Shenzhen SDG Service  vs.  China Marine Information

Shenzhen SDG Service

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen SDG Service are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen SDG sustained solid returns over the last few months and may actually be approaching a breakup point.

China Marine Information

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Marine Information are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Marine sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen SDG and China Marine

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

The idea behind Shenzhen SDG Service and China Marine Information 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.