Correlation Between Hubei Xingfa and Shenzhen Sunway

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

By analyzing existing cross correlation between Hubei Xingfa Chemicals and Shenzhen Sunway Communication, you can compare the effects of market volatilities on Hubei Xingfa and Shenzhen Sunway 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 Hubei Xingfa with a short position of Shenzhen Sunway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Xingfa and Shenzhen Sunway.

Diversification Opportunities for Hubei Xingfa and Shenzhen Sunway

0.93

Correlation Coefficient

Hubei Xingfa  Shenzhen Sunway

Almost no diversification

The 3 months correlation between Hubei and Shenzhen is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Xingfa Chemicals and Shenzhen Sunway Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Sunway Comm and Hubei Xingfa 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 Hubei Xingfa Chemicals are associated (or correlated) with Shenzhen Sunway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Sunway Comm has no effect on the direction of Hubei Xingfa i.e., Hubei Xingfa and Shenzhen Sunway go up and down completely randomly.

Pair Corralation between Hubei Xingfa and Shenzhen Sunway

Assuming the 90 days trading horizon Hubei Xingfa Chemicals is expected to under-perform the Shenzhen Sunway. But the stock apears to be less risky and, when comparing its historical volatility, Hubei Xingfa Chemicals is 1.36 times less risky than Shenzhen Sunway. The stock trades about -0.26 of its potential returns per unit of risk. The Shenzhen Sunway Communication is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  2,773  in Shenzhen Sunway Communication on September 21, 2024 and sell it today you would lose (156.00) from holding Shenzhen Sunway Communication or give up 5.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Hubei Xingfa Chemicals  vs.  Shenzhen Sunway Communication

Hubei Xingfa Chemicals

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Xingfa Chemicals are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Xingfa sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Sunway Comm

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Sunway Communication are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Sunway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hubei Xingfa and Shenzhen Sunway

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

The idea behind Hubei Xingfa Chemicals and Shenzhen Sunway Communication 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .