Correlation Between Shandong and Tianjin Capital

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

By analyzing existing cross correlation between Shandong Hi Speed RoadBridge and Tianjin Capital Environmental, you can compare the effects of market volatilities on Shandong and Tianjin Capital 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 Shandong with a short position of Tianjin Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong and Tianjin Capital.

Diversification Opportunities for Shandong and Tianjin Capital

0.95

Correlation Coefficient

Shandong  Tianjin Capital

Almost no diversification

The 3 months correlation between Shandong and Tianjin is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Hi Speed RoadBridge and Tianjin Capital Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Capital Envi and Shandong 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 Shandong Hi Speed RoadBridge are associated (or correlated) with Tianjin Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Capital Envi has no effect on the direction of Shandong i.e., Shandong and Tianjin Capital go up and down completely randomly.

Pair Corralation between Shandong and Tianjin Capital

Assuming the 90 days trading horizon Shandong Hi Speed RoadBridge is expected to under-perform the Tianjin Capital. In addition to that, Shandong is 1.22 times more volatile than Tianjin Capital Environmental. It trades about -0.11 of its total potential returns per unit of risk. Tianjin Capital Environmental is currently generating about -0.07 per unit of volatility. If you would invest  611.00  in Tianjin Capital Environmental on November 29, 2024 and sell it today you would lose (27.00) from holding Tianjin Capital Environmental or give up 4.42% of portfolio value over 90 days.

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

Shandong Hi Speed RoadBridge  vs.  Tianjin Capital Environmental

Shandong Hi Speed

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shandong Hi Speed RoadBridge 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.

Tianjin Capital Envi

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tianjin Capital Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tianjin Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shandong and Tianjin Capital

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

The idea behind Shandong Hi Speed RoadBridge and Tianjin Capital Environmental 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.