Correlation Between HOB Biotech and Shenzhen Sunway

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

Diversification Opportunities for HOB Biotech and Shenzhen Sunway

0.75

Correlation Coefficient

HOB Biotech  Shenzhen Sunway

Poor diversification

The 3 months correlation between HOB and Shenzhen is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding HOB Biotech Group and Shenzhen Sunway Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Sunway Comm 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 Sunway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Sunway Comm has no effect on the direction of HOB Biotech i.e., HOB Biotech and Shenzhen Sunway go up and down completely randomly.

Pair Corralation between HOB Biotech and Shenzhen Sunway

Assuming the 90 days trading horizon HOB Biotech Group is expected to under-perform the Shenzhen Sunway. In addition to that, HOB Biotech is 2.58 times more volatile than Shenzhen Sunway Communication. It trades about -0.17 of its total potential returns per unit of risk. Shenzhen Sunway Communication is currently generating about -0.02 per unit of volatility. If you would invest  2,604  in Shenzhen Sunway Communication on September 19, 2024 and sell it today you would lose (46.00) from holding Shenzhen Sunway Communication or give up 1.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

HOB Biotech Group  vs.  Shenzhen Sunway Communication

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 Sunway Comm

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Sunway Communication are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Sunway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HOB Biotech and Shenzhen Sunway

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

The idea behind HOB Biotech Group and Shenzhen Sunway 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.