Correlation Between Shanghai Fudan and Shenzhen Kexin

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

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

Diversification Opportunities for Shanghai Fudan and Shenzhen Kexin

0.73

Correlation Coefficient

Shanghai Fudan  Shenzhen Kexin

Poor diversification

The 3 months correlation between Shanghai and Shenzhen is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Fudan Microelectronic 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 Shanghai Fudan 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 Fudan Microelectronics 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 Shanghai Fudan i.e., Shanghai Fudan and Shenzhen Kexin go up and down completely randomly.

Pair Corralation between Shanghai Fudan and Shenzhen Kexin

Assuming the 90 days trading horizon Shanghai Fudan Microelectronics is expected to generate 0.96 times more return on investment than Shenzhen Kexin. However, Shanghai Fudan Microelectronics is 1.04 times less risky than Shenzhen Kexin. It trades about -0.01 of its potential returns per unit of risk. Shenzhen Kexin Communication is currently generating about -0.02 per unit of risk. If you would invest  6,358  in Shanghai Fudan Microelectronics on October 4, 2024 and sell it today you would lose (2,519) from holding Shanghai Fudan Microelectronics or give up 39.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Shanghai Fudan Microelectronic  vs.  Shenzhen Kexin Communication

Shanghai Fudan Micro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Fudan Microelectronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Fudan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shenzhen Kexin Commu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen Kexin Communication 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 Shanghai Fudan and Shenzhen Kexin

The main advantage of trading using opposite Shanghai Fudan and Shenzhen Kexin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Fudan 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 Shanghai Fudan Microelectronics 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.

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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..