Correlation Between Shanghai Shuixing and Leaguer Shenzhen

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

By analyzing existing cross correlation between Shanghai Shuixing Home and Leaguer Shenzhen MicroElectronics, you can compare the effects of market volatilities on Shanghai Shuixing and Leaguer Shenzhen 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 Shanghai Shuixing with a short position of Leaguer Shenzhen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Shuixing and Leaguer Shenzhen.

Diversification Opportunities for Shanghai Shuixing and Leaguer Shenzhen

0.68

Correlation Coefficient

Shanghai Shuixing  Leaguer Shenzhen

Poor diversification

The 3 months correlation between Shanghai and Leaguer is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Shuixing Home and Leaguer Shenzhen MicroElectron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leaguer Shenzhen Mic and Shanghai Shuixing 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 Shanghai Shuixing Home are associated (or correlated) with Leaguer Shenzhen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leaguer Shenzhen Mic has no effect on the direction of Shanghai Shuixing i.e., Shanghai Shuixing and Leaguer Shenzhen go up and down completely randomly.

Pair Corralation between Shanghai Shuixing and Leaguer Shenzhen

Assuming the 90 days trading horizon Shanghai Shuixing Home is expected to generate 1.84 times more return on investment than Leaguer Shenzhen. However, Shanghai Shuixing is 1.84 times more volatile than Leaguer Shenzhen MicroElectronics. It trades about 0.06 of its potential returns per unit of risk. Leaguer Shenzhen MicroElectronics is currently generating about -0.05 per unit of risk. If you would invest  1,540  in Shanghai Shuixing Home on September 20, 2024 and sell it today you would earn a total of  53.00  from holding Shanghai Shuixing Home or generate 3.44% return on investment over 90 days.

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

Shanghai Shuixing Home  vs.  Leaguer Shenzhen MicroElectron

Shanghai Shuixing Home

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Shuixing Home are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Shuixing sustained solid returns over the last few months and may actually be approaching a breakup point.

Leaguer Shenzhen Mic

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Shanghai Shuixing and Leaguer Shenzhen

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

The idea behind Shanghai Shuixing Home and Leaguer Shenzhen MicroElectronics 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.