Correlation Between China World and Shenzhen Noposion

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

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

Diversification Opportunities for China World and Shenzhen Noposion

0.15

Correlation Coefficient

China World  Shenzhen Noposion

Average diversification

The 3 months correlation between China and Shenzhen is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding China World Trade and Shenzhen Noposion Agrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Noposion and China World 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 World Trade are associated (or correlated) with Shenzhen Noposion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Noposion has no effect on the direction of China World i.e., China World and Shenzhen Noposion go up and down completely randomly.

Pair Corralation between China World and Shenzhen Noposion

Assuming the 90 days trading horizon China World is expected to generate 3.46 times less return on investment than Shenzhen Noposion. But when comparing it to its historical volatility, China World Trade is 1.2 times less risky than Shenzhen Noposion. It trades about 0.07 of its potential returns per unit of risk. Shenzhen Noposion Agrochemicals is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  754.00  in Shenzhen Noposion Agrochemicals on September 5, 2024 and sell it today you would earn a total of  261.00  from holding Shenzhen Noposion Agrochemicals or generate 34.62% return on investment over 90 days.

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

China World Trade  vs.  Shenzhen Noposion Agrochemical

China World Trade

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China World Trade are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China World may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shenzhen Noposion

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Noposion Agrochemicals are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Noposion sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China World and Shenzhen Noposion

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

The idea behind China World Trade and Shenzhen Noposion Agrochemicals 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.