Correlation Between HOB Biotech and Shenzhen Overseas

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

By analyzing existing cross correlation between HOB Biotech Group and Shenzhen Overseas Chinese, you can compare the effects of market volatilities on HOB Biotech and Shenzhen Overseas 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 HOB Biotech with a short position of Shenzhen Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of HOB Biotech and Shenzhen Overseas.

Diversification Opportunities for HOB Biotech and Shenzhen Overseas

0.66

Correlation Coefficient

HOB Biotech  Shenzhen Overseas

Poor diversification

The 3 months correlation between HOB and Shenzhen is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding HOB Biotech Group and Shenzhen Overseas Chinese in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Overseas Chinese and HOB Biotech 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 HOB Biotech Group are associated (or correlated) with Shenzhen Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Overseas Chinese has no effect on the direction of HOB Biotech i.e., HOB Biotech and Shenzhen Overseas go up and down completely randomly.

Pair Corralation between HOB Biotech and Shenzhen Overseas

Assuming the 90 days trading horizon HOB Biotech Group is expected to generate 1.8 times more return on investment than Shenzhen Overseas. However, HOB Biotech is 1.8 times more volatile than Shenzhen Overseas Chinese. It trades about 0.11 of its potential returns per unit of risk. Shenzhen Overseas Chinese is currently generating about 0.01 per unit of risk. If you would invest  3,375  in HOB Biotech Group on September 19, 2024 and sell it today you would earn a total of  6,875  from holding HOB Biotech Group or generate 203.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.58%
Values	Daily Returns

HOB Biotech Group  vs.  Shenzhen Overseas Chinese

HOB Biotech Group

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in HOB Biotech Group are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HOB Biotech sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Overseas Chinese

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with HOB Biotech and Shenzhen Overseas

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

The idea behind HOB Biotech Group and Shenzhen Overseas Chinese 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.