Correlation Between Caihong Display and Shenzhen Kexin

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

Diversification Opportunities for Caihong Display and Shenzhen Kexin

0.05

Correlation Coefficient

Caihong Display  Shenzhen Kexin

Significant diversification

The 3 months correlation between Caihong and Shenzhen is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Caihong Display Devices and Shenzhen Kexin Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Kexin Commu 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 Kexin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Kexin Commu has no effect on the direction of Caihong Display i.e., Caihong Display and Shenzhen Kexin go up and down completely randomly.

Pair Corralation between Caihong Display and Shenzhen Kexin

Assuming the 90 days trading horizon Caihong Display Devices is expected to under-perform the Shenzhen Kexin. But the stock apears to be less risky and, when comparing its historical volatility, Caihong Display Devices is 1.72 times less risky than Shenzhen Kexin. The stock trades about -0.03 of its potential returns per unit of risk. The Shenzhen Kexin Communication is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,239  in Shenzhen Kexin Communication on December 25, 2024 and sell it today you would earn a total of  25.00  from holding Shenzhen Kexin Communication or generate 2.02% return on investment over 90 days.

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

Caihong Display Devices  vs.  Shenzhen Kexin Communication

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 Kexin Commu

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Kexin Communication are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Kexin may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Caihong Display and Shenzhen Kexin

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

The idea behind Caihong Display Devices and Shenzhen Kexin 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.