Correlation Between Dazhong Transportation and Shenzhen Bingchuan

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

Diversification Opportunities for Dazhong Transportation and Shenzhen Bingchuan

0.75

Correlation Coefficient

Dazhong Transportation  Shenzhen Bingchuan

Poor diversification

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

Pair Corralation between Dazhong Transportation and Shenzhen Bingchuan

Assuming the 90 days trading horizon Dazhong Transportation Group is expected to under-perform the Shenzhen Bingchuan. But the stock apears to be less risky and, when comparing its historical volatility, Dazhong Transportation Group is 1.6 times less risky than Shenzhen Bingchuan. The stock trades about -0.05 of its potential returns per unit of risk. The Shenzhen Bingchuan Network is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,445  in Shenzhen Bingchuan Network on December 2, 2024 and sell it today you would lose (176.00) from holding Shenzhen Bingchuan Network or give up 7.2% of portfolio value over 90 days.

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

Dazhong Transportation Group  vs.  Shenzhen Bingchuan Network

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shenzhen Bingchuan

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Dazhong Transportation and Shenzhen Bingchuan

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

The idea behind Dazhong Transportation Group and Shenzhen Bingchuan Network 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..