Correlation Between Shanghai Suochen and Shenzhen Kexin

Can any of the company-specific risk be diversified away by investing in both Shanghai Suochen 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 Suochen 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 Suochen Information and Shenzhen Kexin Communication, you can compare the effects of market volatilities on Shanghai Suochen 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 Suochen with a short position of Shenzhen Kexin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Suochen and Shenzhen Kexin.

Diversification Opportunities for Shanghai Suochen and Shenzhen Kexin

0.4

Correlation Coefficient

Shanghai Suochen  Shenzhen Kexin

Very weak diversification

The 3 months correlation between Shanghai and Shenzhen is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Suochen Information 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 Suochen 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 Suochen Information 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 Suochen i.e., Shanghai Suochen and Shenzhen Kexin go up and down completely randomly.

Pair Corralation between Shanghai Suochen and Shenzhen Kexin

Assuming the 90 days trading horizon Shanghai Suochen Information is expected to generate 1.26 times more return on investment than Shenzhen Kexin. However, Shanghai Suochen is 1.26 times more volatile than Shenzhen Kexin Communication. It trades about 0.17 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  5,770  in Shanghai Suochen Information on December 27, 2024 and sell it today you would earn a total of  3,029  from holding Shanghai Suochen Information or generate 52.5% return on investment over 90 days.

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

Shanghai Suochen Information  vs.  Shenzhen Kexin Communication

Shanghai Suochen Inf

Risk-Adjusted Performance

Good

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

Shenzhen Kexin Commu

Risk-Adjusted Performance

Weak

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

Pair Trading with Shanghai Suochen and Shenzhen Kexin

The main advantage of trading using opposite Shanghai Suochen and Shenzhen Kexin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Suochen 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 Suochen Information 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 Global Correlations module to find global opportunities by holding instruments from different markets.