Correlation Between Liaoning Chengda and Shenzhen

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

By analyzing existing cross correlation between Liaoning Chengda Biotechnology and Shenzhen AV Display Co, you can compare the effects of market volatilities on Liaoning Chengda and Shenzhen 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 Liaoning Chengda with a short position of Shenzhen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liaoning Chengda and Shenzhen.

Diversification Opportunities for Liaoning Chengda and Shenzhen

0.34

Correlation Coefficient

Liaoning Chengda  Shenzhen

Weak diversification

The 3 months correlation between Liaoning and Shenzhen is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Chengda Biotechnology and Shenzhen AV Display Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen AV Display and Liaoning Chengda 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 Liaoning Chengda Biotechnology are associated (or correlated) with Shenzhen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen AV Display has no effect on the direction of Liaoning Chengda i.e., Liaoning Chengda and Shenzhen go up and down completely randomly.

Pair Corralation between Liaoning Chengda and Shenzhen

Assuming the 90 days trading horizon Liaoning Chengda Biotechnology is expected to under-perform the Shenzhen. But the stock apears to be less risky and, when comparing its historical volatility, Liaoning Chengda Biotechnology is 1.85 times less risky than Shenzhen. The stock trades about -0.17 of its potential returns per unit of risk. The Shenzhen AV Display Co is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  3,640  in Shenzhen AV Display Co on October 7, 2024 and sell it today you would lose (683.00) from holding Shenzhen AV Display Co or give up 18.76% of portfolio value over 90 days.

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

Liaoning Chengda Biotechnology  vs.  Shenzhen AV Display Co

Liaoning Chengda Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liaoning Chengda Biotechnology 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.

Shenzhen AV Display

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen AV Display Co 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 Liaoning Chengda and Shenzhen

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

The idea behind Liaoning Chengda Biotechnology and Shenzhen AV Display Co 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.