Correlation Between Small Cap and Shenzhen Investment

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

By analyzing existing cross correlation between Small Cap Premium and Shenzhen Investment Holdings, you can compare the effects of market volatilities on Small Cap and Shenzhen Investment 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 Small Cap with a short position of Shenzhen Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Shenzhen Investment.

Diversification Opportunities for Small Cap and Shenzhen Investment

0.47

Correlation Coefficient

Small Cap  Shenzhen Investment

Very weak diversification

The 3 months correlation between Small and Shenzhen is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and Shenzhen Investment Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Investment and Small Cap 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 Small Cap Premium are associated (or correlated) with Shenzhen Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Investment has no effect on the direction of Small Cap i.e., Small Cap and Shenzhen Investment go up and down completely randomly.

Pair Corralation between Small Cap and Shenzhen Investment

Considering the 90-day investment horizon Small Cap is expected to generate 20.44 times less return on investment than Shenzhen Investment. But when comparing it to its historical volatility, Small Cap Premium is 10.84 times less risky than Shenzhen Investment. It trades about 0.05 of its potential returns per unit of risk. Shenzhen Investment Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  11.00  in Shenzhen Investment Holdings on October 9, 2024 and sell it today you would earn a total of  11.00  from holding Shenzhen Investment Holdings or generate 100.0% return on investment over 90 days.

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

Small Cap Premium  vs.  Shenzhen Investment Holdings

Small Cap Premium

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Shenzhen Investment

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Investment Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Shenzhen Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Small Cap and Shenzhen Investment

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

The idea behind Small Cap Premium and Shenzhen Investment Holdings 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.