Correlation Between Tianjin Hi and Zhejiang Longsheng

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

By analyzing existing cross correlation between Tianjin Hi Tech Development and Zhejiang Longsheng Group, you can compare the effects of market volatilities on Tianjin Hi and Zhejiang Longsheng 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 Tianjin Hi with a short position of Zhejiang Longsheng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tianjin Hi and Zhejiang Longsheng.

Diversification Opportunities for Tianjin Hi and Zhejiang Longsheng

0.71

Correlation Coefficient

Tianjin Hi  Zhejiang Longsheng

Poor diversification

The 3 months correlation between Tianjin and Zhejiang is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Tianjin Hi Tech Development and Zhejiang Longsheng Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Longsheng and Tianjin Hi 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 Tianjin Hi Tech Development are associated (or correlated) with Zhejiang Longsheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Longsheng has no effect on the direction of Tianjin Hi i.e., Tianjin Hi and Zhejiang Longsheng go up and down completely randomly.

Pair Corralation between Tianjin Hi and Zhejiang Longsheng

Assuming the 90 days trading horizon Tianjin Hi Tech Development is expected to generate 2.35 times more return on investment than Zhejiang Longsheng. However, Tianjin Hi is 2.35 times more volatile than Zhejiang Longsheng Group. It trades about 0.09 of its potential returns per unit of risk. Zhejiang Longsheng Group is currently generating about 0.11 per unit of risk. If you would invest  204.00  in Tianjin Hi Tech Development on September 29, 2024 and sell it today you would earn a total of  78.00  from holding Tianjin Hi Tech Development or generate 38.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.19%
Values	Daily Returns

Tianjin Hi Tech Development  vs.  Zhejiang Longsheng Group

Tianjin Hi Tech

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Hi Tech Development are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Hi may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Zhejiang Longsheng

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Longsheng Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Zhejiang Longsheng is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tianjin Hi and Zhejiang Longsheng

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

The idea behind Tianjin Hi Tech Development and Zhejiang Longsheng Group 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.