Correlation Between Changchun Faway and Shenzhen Shenbao

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

By analyzing existing cross correlation between Changchun Faway Automobile and Shenzhen Shenbao Industrial, you can compare the effects of market volatilities on Changchun Faway and Shenzhen Shenbao 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 Changchun Faway with a short position of Shenzhen Shenbao. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changchun Faway and Shenzhen Shenbao.

Diversification Opportunities for Changchun Faway and Shenzhen Shenbao

0.91

Correlation Coefficient

Changchun Faway  Shenzhen Shenbao

Almost no diversification

The 3 months correlation between Changchun and Shenzhen is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Changchun Faway Automobile and Shenzhen Shenbao Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Shenbao Ind and Changchun Faway 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 Changchun Faway Automobile are associated (or correlated) with Shenzhen Shenbao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Shenbao Ind has no effect on the direction of Changchun Faway i.e., Changchun Faway and Shenzhen Shenbao go up and down completely randomly.

Pair Corralation between Changchun Faway and Shenzhen Shenbao

Assuming the 90 days trading horizon Changchun Faway Automobile is expected to generate 0.96 times more return on investment than Shenzhen Shenbao. However, Changchun Faway Automobile is 1.04 times less risky than Shenzhen Shenbao. It trades about 0.19 of its potential returns per unit of risk. Shenzhen Shenbao Industrial is currently generating about 0.14 per unit of risk. If you would invest  734.00  in Changchun Faway Automobile on September 2, 2024 and sell it today you would earn a total of  209.00  from holding Changchun Faway Automobile or generate 28.47% return on investment over 90 days.

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

Changchun Faway Automobile  vs.  Shenzhen Shenbao Industrial

Changchun Faway Auto

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun Faway Automobile are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun Faway sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Shenbao Ind

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Shenbao Industrial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Shenbao sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Changchun Faway and Shenzhen Shenbao

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

The idea behind Changchun Faway Automobile and Shenzhen Shenbao Industrial 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.