Correlation Between Yindu Kitchen and Shenzhen Overseas

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

By analyzing existing cross correlation between Yindu Kitchen Equipment and Shenzhen Overseas Chinese, you can compare the effects of market volatilities on Yindu Kitchen and Shenzhen Overseas 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 Yindu Kitchen with a short position of Shenzhen Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yindu Kitchen and Shenzhen Overseas.

Diversification Opportunities for Yindu Kitchen and Shenzhen Overseas

-0.04

Correlation Coefficient

Yindu Kitchen  Shenzhen Overseas

Good diversification

The 3 months correlation between Yindu and Shenzhen is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Yindu Kitchen Equipment and Shenzhen Overseas Chinese in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Overseas Chinese and Yindu Kitchen 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 Yindu Kitchen Equipment are associated (or correlated) with Shenzhen Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Overseas Chinese has no effect on the direction of Yindu Kitchen i.e., Yindu Kitchen and Shenzhen Overseas go up and down completely randomly.

Pair Corralation between Yindu Kitchen and Shenzhen Overseas

Assuming the 90 days trading horizon Yindu Kitchen Equipment is expected to generate 0.46 times more return on investment than Shenzhen Overseas. However, Yindu Kitchen Equipment is 2.16 times less risky than Shenzhen Overseas. It trades about -0.13 of its potential returns per unit of risk. Shenzhen Overseas Chinese is currently generating about -0.16 per unit of risk. If you would invest  2,434  in Yindu Kitchen Equipment on October 7, 2024 and sell it today you would lose (190.00) from holding Yindu Kitchen Equipment or give up 7.81% of portfolio value over 90 days.

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

Yindu Kitchen Equipment  vs.  Shenzhen Overseas Chinese

Yindu Kitchen Equipment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yindu Kitchen Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shenzhen Overseas Chinese

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen Overseas Chinese has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Yindu Kitchen and Shenzhen Overseas

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

The idea behind Yindu Kitchen Equipment and Shenzhen Overseas Chinese 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.