Correlation Between Shenzhen Investment and MidCap Financial

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

By analyzing existing cross correlation between Shenzhen Investment Limited and MidCap Financial Investment, you can compare the effects of market volatilities on Shenzhen Investment and MidCap Financial 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 MidCap Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Investment and MidCap Financial.

Diversification Opportunities for Shenzhen Investment and MidCap Financial

-0.21

Correlation Coefficient

Shenzhen Investment  MidCap Financial

Very good diversification

The 3 months correlation between Shenzhen and MidCap is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Investment Limited and MidCap Financial Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MidCap Financial Inv 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 Limited are associated (or correlated) with MidCap Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MidCap Financial Inv has no effect on the direction of Shenzhen Investment i.e., Shenzhen Investment and MidCap Financial go up and down completely randomly.

Pair Corralation between Shenzhen Investment and MidCap Financial

Assuming the 90 days horizon Shenzhen Investment Limited is expected to generate 5.41 times more return on investment than MidCap Financial. However, Shenzhen Investment is 5.41 times more volatile than MidCap Financial Investment. It trades about 0.02 of its potential returns per unit of risk. MidCap Financial Investment is currently generating about -0.07 per unit of risk. If you would invest  10.00  in Shenzhen Investment Limited on December 21, 2024 and sell it today you would lose (0.55) from holding Shenzhen Investment Limited or give up 5.5% of portfolio value over 90 days.

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

Shenzhen Investment Limited  vs.  MidCap Financial Investment

Shenzhen Investment

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Investment Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Shenzhen Investment may actually be approaching a critical reversion point that can send shares even higher in April 2025.

MidCap Financial Inv

Risk-Adjusted Performance

Very Weak

Over the last 90 days MidCap Financial Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, MidCap Financial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Shenzhen Investment and MidCap Financial

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

The idea behind Shenzhen Investment Limited and MidCap Financial Investment 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.