Correlation Between Shenzhen Agricultural and Hongrun Construction

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

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

Diversification Opportunities for Shenzhen Agricultural and Hongrun Construction

0.15

Correlation Coefficient

Shenzhen Agricultural  Hongrun Construction

Average diversification

The 3 months correlation between Shenzhen and Hongrun is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Agricultural Products and Hongrun Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hongrun Construction and Shenzhen Agricultural 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 Agricultural Products are associated (or correlated) with Hongrun Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hongrun Construction has no effect on the direction of Shenzhen Agricultural i.e., Shenzhen Agricultural and Hongrun Construction go up and down completely randomly.

Pair Corralation between Shenzhen Agricultural and Hongrun Construction

Assuming the 90 days trading horizon Shenzhen Agricultural is expected to generate 4.99 times less return on investment than Hongrun Construction. But when comparing it to its historical volatility, Shenzhen Agricultural Products is 1.42 times less risky than Hongrun Construction. It trades about 0.05 of its potential returns per unit of risk. Hongrun Construction Group is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  386.00  in Hongrun Construction Group on October 23, 2024 and sell it today you would earn a total of  131.00  from holding Hongrun Construction Group or generate 33.94% return on investment over 90 days.

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

Shenzhen Agricultural Products  vs.  Hongrun Construction Group

Shenzhen Agricultural

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Agricultural Products are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Agricultural may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Hongrun Construction

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hongrun Construction Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hongrun Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenzhen Agricultural and Hongrun Construction

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

The idea behind Shenzhen Agricultural Products and Hongrun Construction Group 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.