Correlation Between China Asset and Shenzhen Fortune

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

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

Diversification Opportunities for China Asset and Shenzhen Fortune

0.38

Correlation Coefficient

China Asset  Shenzhen Fortune

Weak diversification

The 3 months correlation between China and Shenzhen is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding China Asset Management and Shenzhen Fortune Trend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Fortune Trend and China Asset 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 China Asset Management are associated (or correlated) with Shenzhen Fortune. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Fortune Trend has no effect on the direction of China Asset i.e., China Asset and Shenzhen Fortune go up and down completely randomly.

Pair Corralation between China Asset and Shenzhen Fortune

Assuming the 90 days trading horizon China Asset Management is expected to generate 0.35 times more return on investment than Shenzhen Fortune. However, China Asset Management is 2.85 times less risky than Shenzhen Fortune. It trades about 0.52 of its potential returns per unit of risk. Shenzhen Fortune Trend is currently generating about -0.25 per unit of risk. If you would invest  324.00  in China Asset Management on October 8, 2024 and sell it today you would earn a total of  47.00  from holding China Asset Management or generate 14.51% return on investment over 90 days.

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

China Asset Management  vs.  Shenzhen Fortune Trend

China Asset Management

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Asset Management are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Asset sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Fortune Trend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen Fortune Trend 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 China Asset and Shenzhen Fortune

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

The idea behind China Asset Management and Shenzhen Fortune Trend 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.