Correlation Between Xiamen ITG and Shenwan Hongyuan

Can any of the company-specific risk be diversified away by investing in both Xiamen ITG and Shenwan Hongyuan 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 Xiamen ITG and Shenwan Hongyuan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xiamen ITG Group and Shenwan Hongyuan Group, you can compare the effects of market volatilities on Xiamen ITG and Shenwan Hongyuan 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 Xiamen ITG with a short position of Shenwan Hongyuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xiamen ITG and Shenwan Hongyuan.

Diversification Opportunities for Xiamen ITG and Shenwan Hongyuan

0.83

Correlation Coefficient

Xiamen ITG  Shenwan Hongyuan

Very poor diversification

The 3 months correlation between Xiamen and Shenwan is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Xiamen ITG Group and Shenwan Hongyuan Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenwan Hongyuan and Xiamen ITG 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 Xiamen ITG Group are associated (or correlated) with Shenwan Hongyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenwan Hongyuan has no effect on the direction of Xiamen ITG i.e., Xiamen ITG and Shenwan Hongyuan go up and down completely randomly.

Pair Corralation between Xiamen ITG and Shenwan Hongyuan

Assuming the 90 days trading horizon Xiamen ITG is expected to generate 2.14 times less return on investment than Shenwan Hongyuan. But when comparing it to its historical volatility, Xiamen ITG Group is 1.25 times less risky than Shenwan Hongyuan. It trades about 0.07 of its potential returns per unit of risk. Shenwan Hongyuan Group is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  451.00  in Shenwan Hongyuan Group on September 24, 2024 and sell it today you would earn a total of  90.00  from holding Shenwan Hongyuan Group or generate 19.96% return on investment over 90 days.

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

Xiamen ITG Group  vs.  Shenwan Hongyuan Group

Xiamen ITG Group

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen ITG Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xiamen ITG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shenwan Hongyuan

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenwan Hongyuan Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenwan Hongyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xiamen ITG and Shenwan Hongyuan

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

The idea behind Xiamen ITG Group and Shenwan Hongyuan Group 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.