Correlation Between Shenzhen Shenbao and Shaanxi Construction

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

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

Diversification Opportunities for Shenzhen Shenbao and Shaanxi Construction

0.71

Correlation Coefficient

Shenzhen Shenbao  Shaanxi Construction

Poor diversification

The 3 months correlation between Shenzhen and Shaanxi is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Shenbao Industrial and Shaanxi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Construction and Shenzhen Shenbao 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 Shenbao Industrial are associated (or correlated) with Shaanxi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaanxi Construction has no effect on the direction of Shenzhen Shenbao i.e., Shenzhen Shenbao and Shaanxi Construction go up and down completely randomly.

Pair Corralation between Shenzhen Shenbao and Shaanxi Construction

Assuming the 90 days trading horizon Shenzhen Shenbao Industrial is expected to generate 0.52 times more return on investment than Shaanxi Construction. However, Shenzhen Shenbao Industrial is 1.93 times less risky than Shaanxi Construction. It trades about -0.13 of its potential returns per unit of risk. Shaanxi Construction Machinery is currently generating about -0.15 per unit of risk. If you would invest  697.00  in Shenzhen Shenbao Industrial on October 7, 2024 and sell it today you would lose (69.00) from holding Shenzhen Shenbao Industrial or give up 9.9% of portfolio value over 90 days.

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

Shenzhen Shenbao Industrial  vs.  Shaanxi Construction Machinery

Shenzhen Shenbao Ind

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen Shenbao Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shaanxi Construction

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Construction Machinery are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shaanxi Construction may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shenzhen Shenbao and Shaanxi Construction

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

The idea behind Shenzhen Shenbao Industrial and Shaanxi Construction Machinery 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.