Correlation Between Dazhong Transportation and Shenzhen Glory

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

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

Diversification Opportunities for Dazhong Transportation and Shenzhen Glory

0.93

Correlation Coefficient

Dazhong Transportation  Shenzhen Glory

Almost no diversification

The 3 months correlation between Dazhong and Shenzhen is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Dazhong Transportation Group and Shenzhen Glory Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Glory Medical and Dazhong Transportation 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 Dazhong Transportation Group are associated (or correlated) with Shenzhen Glory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Glory Medical has no effect on the direction of Dazhong Transportation i.e., Dazhong Transportation and Shenzhen Glory go up and down completely randomly.

Pair Corralation between Dazhong Transportation and Shenzhen Glory

Assuming the 90 days trading horizon Dazhong Transportation is expected to generate 6.35 times less return on investment than Shenzhen Glory. But when comparing it to its historical volatility, Dazhong Transportation Group is 1.19 times less risky than Shenzhen Glory. It trades about 0.01 of its potential returns per unit of risk. Shenzhen Glory Medical is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  311.00  in Shenzhen Glory Medical on December 26, 2024 and sell it today you would earn a total of  15.00  from holding Shenzhen Glory Medical or generate 4.82% return on investment over 90 days.

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

Dazhong Transportation Group  vs.  Shenzhen Glory Medical

Dazhong Transportation

Risk-Adjusted Performance

Very Weak

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

Shenzhen Glory Medical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Glory Medical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Glory may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Dazhong Transportation and Shenzhen Glory

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

The idea behind Dazhong Transportation Group and Shenzhen Glory Medical 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.