Correlation Between Caihong Display and Shenzhen Changfang

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

By analyzing existing cross correlation between Caihong Display Devices and Shenzhen Changfang Light, you can compare the effects of market volatilities on Caihong Display and Shenzhen Changfang 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 Caihong Display with a short position of Shenzhen Changfang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caihong Display and Shenzhen Changfang.

Diversification Opportunities for Caihong Display and Shenzhen Changfang

0.31

Correlation Coefficient

Caihong Display  Shenzhen Changfang

Weak diversification

The 3 months correlation between Caihong and Shenzhen is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Caihong Display Devices and Shenzhen Changfang Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Changfang Light and Caihong Display 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 Caihong Display Devices are associated (or correlated) with Shenzhen Changfang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Changfang Light has no effect on the direction of Caihong Display i.e., Caihong Display and Shenzhen Changfang go up and down completely randomly.

Pair Corralation between Caihong Display and Shenzhen Changfang

Assuming the 90 days trading horizon Caihong Display Devices is expected to under-perform the Shenzhen Changfang. In addition to that, Caihong Display is 1.02 times more volatile than Shenzhen Changfang Light. It trades about -0.03 of its total potential returns per unit of risk. Shenzhen Changfang Light is currently generating about 0.14 per unit of volatility. If you would invest  165.00  in Shenzhen Changfang Light on December 26, 2024 and sell it today you would earn a total of  31.00  from holding Shenzhen Changfang Light or generate 18.79% return on investment over 90 days.

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

Caihong Display Devices  vs.  Shenzhen Changfang Light

Caihong Display Devices

Risk-Adjusted Performance

Very Weak

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

Shenzhen Changfang Light

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Changfang Light are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Changfang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caihong Display and Shenzhen Changfang

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

The idea behind Caihong Display Devices and Shenzhen Changfang Light 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 Global Correlations module to find global opportunities by holding instruments from different markets.