Correlation Between Datang HuaYin and Shenzhen Sunlord

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

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

Diversification Opportunities for Datang HuaYin and Shenzhen Sunlord

0.93

Correlation Coefficient

Datang HuaYin  Shenzhen Sunlord

Almost no diversification

The 3 months correlation between Datang and Shenzhen is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Datang HuaYin Electric and Shenzhen Sunlord Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Sunlord Ele and Datang HuaYin 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 Datang HuaYin Electric are associated (or correlated) with Shenzhen Sunlord. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Sunlord Ele has no effect on the direction of Datang HuaYin i.e., Datang HuaYin and Shenzhen Sunlord go up and down completely randomly.

Pair Corralation between Datang HuaYin and Shenzhen Sunlord

Assuming the 90 days trading horizon Datang HuaYin Electric is expected to under-perform the Shenzhen Sunlord. In addition to that, Datang HuaYin is 1.17 times more volatile than Shenzhen Sunlord Electronics. It trades about -0.07 of its total potential returns per unit of risk. Shenzhen Sunlord Electronics is currently generating about 0.11 per unit of volatility. If you would invest  3,151  in Shenzhen Sunlord Electronics on September 22, 2024 and sell it today you would earn a total of  124.00  from holding Shenzhen Sunlord Electronics or generate 3.94% return on investment over 90 days.

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

Datang HuaYin Electric  vs.  Shenzhen Sunlord Electronics

Datang HuaYin Electric

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Datang HuaYin Electric are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Datang HuaYin sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Sunlord Ele

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Sunlord Electronics are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Sunlord sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Datang HuaYin and Shenzhen Sunlord

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

The idea behind Datang HuaYin Electric and Shenzhen Sunlord 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.