Correlation Between Wuhan Yangtze and Shenzhen Zhongzhuang

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Can any of the company-specific risk be diversified away by investing in both Wuhan Yangtze and Shenzhen Zhongzhuang 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 Zhongzhuang 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 Zhongzhuang Construction, you can compare the effects of market volatilities on Wuhan Yangtze and Shenzhen Zhongzhuang 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 Zhongzhuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wuhan Yangtze and Shenzhen Zhongzhuang.

Diversification Opportunities for Wuhan Yangtze and Shenzhen Zhongzhuang

WuhanShenzhenDiversified AwayWuhanShenzhenDiversified Away100%
0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between Wuhan and Shenzhen is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Wuhan Yangtze Communication and Shenzhen Zhongzhuang Construct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Zhongzhuang 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 Zhongzhuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Zhongzhuang has no effect on the direction of Wuhan Yangtze i.e., Wuhan Yangtze and Shenzhen Zhongzhuang go up and down completely randomly.

Pair Corralation between Wuhan Yangtze and Shenzhen Zhongzhuang

Assuming the 90 days trading horizon Wuhan Yangtze Communication is expected to under-perform the Shenzhen Zhongzhuang. In addition to that, Wuhan Yangtze is 1.19 times more volatile than Shenzhen Zhongzhuang Construction. It trades about -0.01 of its total potential returns per unit of risk. Shenzhen Zhongzhuang Construction is currently generating about 0.06 per unit of volatility. If you would invest  335.00  in Shenzhen Zhongzhuang Construction on November 19, 2024 and sell it today you would earn a total of  29.00  from holding Shenzhen Zhongzhuang Construction or generate 8.66% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Wuhan Yangtze Communication  vs.  Shenzhen Zhongzhuang Construct

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb 1020304050
JavaScript chart by amCharts 3.21.15600345 002822
       Timeline  
Wuhan Yangtze Commun 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Wuhan Yangtze Communication has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Wuhan Yangtze is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb20222426283032
Shenzhen Zhongzhuang 

Risk-Adjusted Performance

Insignificant

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Zhongzhuang Construction are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Zhongzhuang may actually be approaching a critical reversion point that can send shares even higher in March 2025.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb3.23.43.63.844.24.44.6

Wuhan Yangtze and Shenzhen Zhongzhuang Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-14.75-11.05-7.34-3.640.06493.837.7211.6115.5 0.0100.0150.0200.0250.0300.035
JavaScript chart by amCharts 3.21.15600345 002822
       Returns  

Pair Trading with Wuhan Yangtze and Shenzhen Zhongzhuang

The main advantage of trading using opposite Wuhan Yangtze and Shenzhen Zhongzhuang positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wuhan Yangtze position performs unexpectedly, Shenzhen Zhongzhuang 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 Zhongzhuang will offset losses from the drop in Shenzhen Zhongzhuang's long position.
The idea behind Wuhan Yangtze Communication and Shenzhen Zhongzhuang Construction 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.

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