Correlation Between Shanghai Shibei and Shenzhen Clou

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

By analyzing existing cross correlation between Shanghai Shibei Hi Tech and Shenzhen Clou Electronics, you can compare the effects of market volatilities on Shanghai Shibei and Shenzhen Clou 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 Shanghai Shibei with a short position of Shenzhen Clou. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Shibei and Shenzhen Clou.

Diversification Opportunities for Shanghai Shibei and Shenzhen Clou

0.87

Correlation Coefficient

Shanghai Shibei  Shenzhen Clou

Very poor diversification

The 3 months correlation between Shanghai and Shenzhen is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Shibei Hi Tech and Shenzhen Clou Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Clou Electronics and Shanghai Shibei 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 Shanghai Shibei Hi Tech are associated (or correlated) with Shenzhen Clou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Clou Electronics has no effect on the direction of Shanghai Shibei i.e., Shanghai Shibei and Shenzhen Clou go up and down completely randomly.

Pair Corralation between Shanghai Shibei and Shenzhen Clou

Assuming the 90 days trading horizon Shanghai Shibei Hi Tech is expected to generate 0.84 times more return on investment than Shenzhen Clou. However, Shanghai Shibei Hi Tech is 1.2 times less risky than Shenzhen Clou. It trades about -0.02 of its potential returns per unit of risk. Shenzhen Clou Electronics is currently generating about -0.02 per unit of risk. If you would invest  495.00  in Shanghai Shibei Hi Tech on December 27, 2024 and sell it today you would lose (17.00) from holding Shanghai Shibei Hi Tech or give up 3.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

Shanghai Shibei Hi Tech  vs.  Shenzhen Clou Electronics

Shanghai Shibei Hi

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Shibei Hi Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Shibei is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shenzhen Clou Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shenzhen Clou Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shenzhen Clou is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shanghai Shibei and Shenzhen Clou

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

The idea behind Shanghai Shibei Hi Tech and Shenzhen Clou Electronics 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.