Correlation Between Zhejiang Expressway and Shenzhen Expressway

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

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

Diversification Opportunities for Zhejiang Expressway and Shenzhen Expressway

0.0

Correlation Coefficient

Zhejiang Expressway  Shenzhen Expressway

Pay attention - limited upside

The 3 months correlation between Zhejiang and Shenzhen is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Expressway Co and Shenzhen Expressway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Expressway and Zhejiang Expressway 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 Zhejiang Expressway Co are associated (or correlated) with Shenzhen Expressway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Expressway has no effect on the direction of Zhejiang Expressway i.e., Zhejiang Expressway and Shenzhen Expressway go up and down completely randomly.

Pair Corralation between Zhejiang Expressway and Shenzhen Expressway

Assuming the 90 days horizon Zhejiang Expressway Co is expected to generate 3.17 times more return on investment than Shenzhen Expressway. However, Zhejiang Expressway is 3.17 times more volatile than Shenzhen Expressway. It trades about 0.03 of its potential returns per unit of risk. Shenzhen Expressway is currently generating about 0.03 per unit of risk. If you would invest  70.00  in Zhejiang Expressway Co on October 11, 2024 and sell it today you would lose (5.00) from holding Zhejiang Expressway Co or give up 7.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	80.97%
Values	Daily Returns

Zhejiang Expressway Co  vs.  Shenzhen Expressway

Zhejiang Expressway

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Zhejiang Expressway Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Shenzhen Expressway

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Shenzhen Expressway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Shenzhen Expressway is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Zhejiang Expressway and Shenzhen Expressway

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

The idea behind Zhejiang Expressway Co and Shenzhen Expressway 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 Stocks Directory module to find actively traded stocks across global markets.