Correlation Between Fujian Oriental and Shenzhen Overseas

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

By analyzing existing cross correlation between Fujian Oriental Silver and Shenzhen Overseas Chinese, you can compare the effects of market volatilities on Fujian Oriental and Shenzhen Overseas 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 Fujian Oriental with a short position of Shenzhen Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fujian Oriental and Shenzhen Overseas.

Diversification Opportunities for Fujian Oriental and Shenzhen Overseas

0.53

Correlation Coefficient

Fujian Oriental  Shenzhen Overseas

Very weak diversification

The 3 months correlation between Fujian and Shenzhen is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Fujian Oriental Silver and Shenzhen Overseas Chinese in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Overseas Chinese and Fujian Oriental 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 Fujian Oriental Silver are associated (or correlated) with Shenzhen Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Overseas Chinese has no effect on the direction of Fujian Oriental i.e., Fujian Oriental and Shenzhen Overseas go up and down completely randomly.

Pair Corralation between Fujian Oriental and Shenzhen Overseas

Assuming the 90 days trading horizon Fujian Oriental Silver is expected to generate 1.22 times more return on investment than Shenzhen Overseas. However, Fujian Oriental is 1.22 times more volatile than Shenzhen Overseas Chinese. It trades about -0.02 of its potential returns per unit of risk. Shenzhen Overseas Chinese is currently generating about -0.09 per unit of risk. If you would invest  665.00  in Fujian Oriental Silver on October 7, 2024 and sell it today you would lose (73.00) from holding Fujian Oriental Silver or give up 10.98% of portfolio value over 90 days.

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

Fujian Oriental Silver  vs.  Shenzhen Overseas Chinese

Fujian Oriental Silver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fujian Oriental Silver has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shenzhen Overseas Chinese

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen Overseas Chinese has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Fujian Oriental and Shenzhen Overseas

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

The idea behind Fujian Oriental Silver and Shenzhen Overseas Chinese 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.