Correlation Between Shenzhen Fortune and Tonghua Grape

Can any of the company-specific risk be diversified away by investing in both Shenzhen Fortune and Tonghua Grape 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 Tonghua Grape 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 Tonghua Grape Wine, you can compare the effects of market volatilities on Shenzhen Fortune and Tonghua Grape 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 Tonghua Grape. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Fortune and Tonghua Grape.

Diversification Opportunities for Shenzhen Fortune and Tonghua Grape

0.81

Correlation Coefficient

Shenzhen Fortune  Tonghua Grape

Very poor diversification

The 3 months correlation between Shenzhen and Tonghua is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Fortune Trend and Tonghua Grape Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tonghua Grape Wine 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 Tonghua Grape. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tonghua Grape Wine has no effect on the direction of Shenzhen Fortune i.e., Shenzhen Fortune and Tonghua Grape go up and down completely randomly.

Pair Corralation between Shenzhen Fortune and Tonghua Grape

Assuming the 90 days trading horizon Shenzhen Fortune Trend is expected to under-perform the Tonghua Grape. In addition to that, Shenzhen Fortune is 1.51 times more volatile than Tonghua Grape Wine. It trades about -0.28 of its total potential returns per unit of risk. Tonghua Grape Wine is currently generating about -0.17 per unit of volatility. If you would invest  303.00  in Tonghua Grape Wine on October 6, 2024 and sell it today you would lose (27.00) from holding Tonghua Grape Wine or give up 8.91% of portfolio value over 90 days.

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

Shenzhen Fortune Trend  vs.  Tonghua Grape Wine

Shenzhen Fortune Trend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen Fortune Trend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Tonghua Grape Wine

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tonghua Grape Wine are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Tonghua Grape is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shenzhen Fortune and Tonghua Grape

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

The idea behind Shenzhen Fortune Trend and Tonghua Grape Wine 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 Transaction History module to view history of all your transactions and understand their impact on performance.