Correlation Between Shenzhen Fortune and Tieling Newcity

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

By analyzing existing cross correlation between Shenzhen Fortune Trend and Tieling Newcity Investment, you can compare the effects of market volatilities on Shenzhen Fortune and Tieling Newcity 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 Shenzhen Fortune with a short position of Tieling Newcity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Fortune and Tieling Newcity.

Diversification Opportunities for Shenzhen Fortune and Tieling Newcity

0.82

Correlation Coefficient

Shenzhen Fortune  Tieling Newcity

Very poor diversification

The 3 months correlation between Shenzhen and Tieling is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Fortune Trend and Tieling Newcity Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tieling Newcity Inve and Shenzhen Fortune 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 Shenzhen Fortune Trend are associated (or correlated) with Tieling Newcity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tieling Newcity Inve has no effect on the direction of Shenzhen Fortune i.e., Shenzhen Fortune and Tieling Newcity go up and down completely randomly.

Pair Corralation between Shenzhen Fortune and Tieling Newcity

Assuming the 90 days trading horizon Shenzhen Fortune Trend is expected to generate 3.4 times more return on investment than Tieling Newcity. However, Shenzhen Fortune is 3.4 times more volatile than Tieling Newcity Investment. It trades about 0.23 of its potential returns per unit of risk. Tieling Newcity Investment is currently generating about 0.25 per unit of risk. If you would invest  8,930  in Shenzhen Fortune Trend on September 7, 2024 and sell it today you would earn a total of  11,120  from holding Shenzhen Fortune Trend or generate 124.52% return on investment over 90 days.

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

Shenzhen Fortune Trend  vs.  Tieling Newcity Investment

Shenzhen Fortune Trend

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Fortune Trend are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Fortune sustained solid returns over the last few months and may actually be approaching a breakup point.

Tieling Newcity Inve

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tieling Newcity Investment are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tieling Newcity sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Fortune and Tieling Newcity

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

The idea behind Shenzhen Fortune Trend and Tieling Newcity Investment 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.