Correlation Between New China and Shenzhen Clou

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

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

Diversification Opportunities for New China and Shenzhen Clou

0.3

Correlation Coefficient

New China  Shenzhen Clou

Weak diversification

The 3 months correlation between New and Shenzhen is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding New China Life and Shenzhen Clou Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Clou Electronics and New China 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 New China Life are associated (or correlated) with Shenzhen Clou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Clou Electronics has no effect on the direction of New China i.e., New China and Shenzhen Clou go up and down completely randomly.

Pair Corralation between New China and Shenzhen Clou

Assuming the 90 days trading horizon New China Life is expected to under-perform the Shenzhen Clou. But the stock apears to be less risky and, when comparing its historical volatility, New China Life is 1.22 times less risky than Shenzhen Clou. The stock trades about -0.04 of its potential returns per unit of risk. The Shenzhen Clou Electronics is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  456.00  in Shenzhen Clou Electronics on October 8, 2024 and sell it today you would lose (46.00) from holding Shenzhen Clou Electronics or give up 10.09% of portfolio value over 90 days.

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

New China Life  vs.  Shenzhen Clou Electronics

New China Life

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New China Life 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 Clou Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen Clou Electronics 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.

Pair Trading with New China and Shenzhen Clou

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

The idea behind New China Life and Shenzhen Clou 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.