Correlation Between Hefei Metalforming and Shenzhen Kexin

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

By analyzing existing cross correlation between Hefei Metalforming Mach and Shenzhen Kexin Communication, you can compare the effects of market volatilities on Hefei Metalforming and Shenzhen Kexin 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 Hefei Metalforming with a short position of Shenzhen Kexin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hefei Metalforming and Shenzhen Kexin.

Diversification Opportunities for Hefei Metalforming and Shenzhen Kexin

0.65

Correlation Coefficient

Hefei Metalforming  Shenzhen Kexin

Poor diversification

The 3 months correlation between Hefei and Shenzhen is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Hefei Metalforming Mach and Shenzhen Kexin Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Kexin Commu and Hefei Metalforming 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 Hefei Metalforming Mach are associated (or correlated) with Shenzhen Kexin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Kexin Commu has no effect on the direction of Hefei Metalforming i.e., Hefei Metalforming and Shenzhen Kexin go up and down completely randomly.

Pair Corralation between Hefei Metalforming and Shenzhen Kexin

Assuming the 90 days trading horizon Hefei Metalforming is expected to generate 1.54 times less return on investment than Shenzhen Kexin. But when comparing it to its historical volatility, Hefei Metalforming Mach is 1.31 times less risky than Shenzhen Kexin. It trades about 0.07 of its potential returns per unit of risk. Shenzhen Kexin Communication is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  993.00  in Shenzhen Kexin Communication on September 25, 2024 and sell it today you would earn a total of  344.00  from holding Shenzhen Kexin Communication or generate 34.64% return on investment over 90 days.

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

Hefei Metalforming Mach  vs.  Shenzhen Kexin Communication

Hefei Metalforming Mach

Risk-Adjusted Performance

8 of 100

OK

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

Shenzhen Kexin Commu

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Hefei Metalforming and Shenzhen Kexin

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

The idea behind Hefei Metalforming Mach and Shenzhen Kexin Communication 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.