Correlation Between Industrial and Shenzhen Changfang

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

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

Diversification Opportunities for Industrial and Shenzhen Changfang

0.31

Correlation Coefficient

Industrial  Shenzhen Changfang

Weak diversification

The 3 months correlation between Industrial and Shenzhen is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Shenzhen Changfang Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Changfang Light and Industrial 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 Industrial and Commercial are associated (or correlated) with Shenzhen Changfang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Changfang Light has no effect on the direction of Industrial i.e., Industrial and Shenzhen Changfang go up and down completely randomly.

Pair Corralation between Industrial and Shenzhen Changfang

Assuming the 90 days trading horizon Industrial is expected to generate 4.04 times less return on investment than Shenzhen Changfang. But when comparing it to its historical volatility, Industrial and Commercial is 2.71 times less risky than Shenzhen Changfang. It trades about 0.12 of its potential returns per unit of risk. Shenzhen Changfang Light is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  126.00  in Shenzhen Changfang Light on September 5, 2024 and sell it today you would earn a total of  57.00  from holding Shenzhen Changfang Light or generate 45.24% return on investment over 90 days.

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

Industrial and Commercial  vs.  Shenzhen Changfang Light

Industrial and Commercial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shenzhen Changfang Light

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Changfang Light are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Changfang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrial and Shenzhen Changfang

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

The idea behind Industrial and Commercial and Shenzhen Changfang Light 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.