Correlation Between Forward Air and Shengfeng Development

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

By analyzing existing cross correlation between Forward Air and Shengfeng Development Limited, you can compare the effects of market volatilities on Forward Air and Shengfeng Development 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 Forward Air with a short position of Shengfeng Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Forward Air and Shengfeng Development.

Diversification Opportunities for Forward Air and Shengfeng Development

0.72

Correlation Coefficient

Forward Air  Shengfeng Development

Poor diversification

The 3 months correlation between Forward and Shengfeng is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Forward Air and Shengfeng Development Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shengfeng Development and Forward Air 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 Forward Air are associated (or correlated) with Shengfeng Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shengfeng Development has no effect on the direction of Forward Air i.e., Forward Air and Shengfeng Development go up and down completely randomly.

Pair Corralation between Forward Air and Shengfeng Development

Given the investment horizon of 90 days Forward Air is expected to under-perform the Shengfeng Development. But the stock apears to be less risky and, when comparing its historical volatility, Forward Air is 1.25 times less risky than Shengfeng Development. The stock trades about -0.65 of its potential returns per unit of risk. The Shengfeng Development Limited is currently generating about -0.23 of returns per unit of risk over similar time horizon. If you would invest  118.00  in Shengfeng Development Limited on September 27, 2024 and sell it today you would lose (13.00) from holding Shengfeng Development Limited or give up 11.02% of portfolio value over 90 days.

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

Forward Air  vs.  Shengfeng Development Limited

Forward Air

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Forward Air has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Shengfeng Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shengfeng Development Limited 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 quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Forward Air and Shengfeng Development

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

The idea behind Forward Air and Shengfeng Development Limited 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.