Correlation Between Shenzhen Investment and SM Investments

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

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

Diversification Opportunities for Shenzhen Investment and SM Investments

0.24

Correlation Coefficient

Shenzhen Investment  SM Investments

Modest diversification

The 3 months correlation between Shenzhen and SVTMF is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Investment Holdings and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments and Shenzhen Investment 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 Shenzhen Investment Holdings are associated (or correlated) with SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments has no effect on the direction of Shenzhen Investment i.e., Shenzhen Investment and SM Investments go up and down completely randomly.

Pair Corralation between Shenzhen Investment and SM Investments

Assuming the 90 days horizon Shenzhen Investment is expected to generate 2.01 times less return on investment than SM Investments. But when comparing it to its historical volatility, Shenzhen Investment Holdings is 3.56 times less risky than SM Investments. It trades about 0.13 of its potential returns per unit of risk. SM Investments is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,420  in SM Investments on October 11, 2024 and sell it today you would earn a total of  121.00  from holding SM Investments or generate 8.52% return on investment over 90 days.

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

Shenzhen Investment Holdings  vs.  SM Investments

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.

SM Investments

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SM Investments are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, SM Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shenzhen Investment and SM Investments

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

The idea behind Shenzhen Investment Holdings and SM Investments 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..