Correlation Between Wuhan Yangtze and Shenzhen Glory

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

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

Diversification Opportunities for Wuhan Yangtze and Shenzhen Glory

0.82

Correlation Coefficient

Wuhan Yangtze  Shenzhen Glory

Very poor diversification

The 3 months correlation between Wuhan and Shenzhen is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Wuhan Yangtze Communication and Shenzhen Glory Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Glory Medical and Wuhan Yangtze 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 Wuhan Yangtze Communication are associated (or correlated) with Shenzhen Glory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Glory Medical has no effect on the direction of Wuhan Yangtze i.e., Wuhan Yangtze and Shenzhen Glory go up and down completely randomly.

Pair Corralation between Wuhan Yangtze and Shenzhen Glory

Assuming the 90 days trading horizon Wuhan Yangtze Communication is expected to generate 1.45 times more return on investment than Shenzhen Glory. However, Wuhan Yangtze is 1.45 times more volatile than Shenzhen Glory Medical. It trades about 0.07 of its potential returns per unit of risk. Shenzhen Glory Medical is currently generating about 0.05 per unit of risk. If you would invest  2,480  in Wuhan Yangtze Communication on December 26, 2024 and sell it today you would earn a total of  264.00  from holding Wuhan Yangtze Communication or generate 10.65% return on investment over 90 days.

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

Wuhan Yangtze Communication  vs.  Shenzhen Glory Medical

Wuhan Yangtze Commun

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wuhan Yangtze Communication are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuhan Yangtze sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Glory Medical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Glory Medical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Glory may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Wuhan Yangtze and Shenzhen Glory

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

The idea behind Wuhan Yangtze Communication and Shenzhen Glory Medical 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.