Correlation Between China Satellite and Shenzhen Kaifa

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

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

Diversification Opportunities for China Satellite and Shenzhen Kaifa

0.38

Correlation Coefficient

China Satellite  Shenzhen Kaifa

Weak diversification

The 3 months correlation between China and Shenzhen is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding China Satellite Communications and Shenzhen Kaifa Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Kaifa Technology and China Satellite 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 China Satellite Communications are associated (or correlated) with Shenzhen Kaifa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Kaifa Technology has no effect on the direction of China Satellite i.e., China Satellite and Shenzhen Kaifa go up and down completely randomly.

Pair Corralation between China Satellite and Shenzhen Kaifa

Assuming the 90 days trading horizon China Satellite Communications is expected to under-perform the Shenzhen Kaifa. But the stock apears to be less risky and, when comparing its historical volatility, China Satellite Communications is 1.42 times less risky than Shenzhen Kaifa. The stock trades about -0.2 of its potential returns per unit of risk. The Shenzhen Kaifa Technology is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,028  in Shenzhen Kaifa Technology on October 25, 2024 and sell it today you would lose (42.00) from holding Shenzhen Kaifa Technology or give up 2.07% of portfolio value over 90 days.

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

China Satellite Communications  vs.  Shenzhen Kaifa Technology

China Satellite Comm

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Satellite Communications are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Satellite sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Kaifa Technology

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Kaifa Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Kaifa may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Satellite and Shenzhen Kaifa

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

The idea behind China Satellite Communications and Shenzhen Kaifa Technology 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.