Correlation Between Shandong and Anhui Transport

Can any of the company-specific risk be diversified away by investing in both Shandong and Anhui Transport 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 Anhui Transport 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 Anhui Transport Consulting, you can compare the effects of market volatilities on Shandong and Anhui Transport 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 Anhui Transport. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong and Anhui Transport.

Diversification Opportunities for Shandong and Anhui Transport

0.95

Correlation Coefficient

Shandong  Anhui Transport

Almost no diversification

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

Pair Corralation between Shandong and Anhui Transport

Assuming the 90 days trading horizon Shandong Hi Speed RoadBridge is expected to under-perform the Anhui Transport. But the stock apears to be less risky and, when comparing its historical volatility, Shandong Hi Speed RoadBridge is 1.19 times less risky than Anhui Transport. The stock trades about -0.17 of its potential returns per unit of risk. The Anhui Transport Consulting is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  960.00  in Anhui Transport Consulting on September 20, 2024 and sell it today you would lose (22.00) from holding Anhui Transport Consulting or give up 2.29% 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.  Anhui Transport Consulting

Shandong Hi Speed

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hi Speed RoadBridge are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong sustained solid returns over the last few months and may actually be approaching a breakup point.

Anhui Transport Cons

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Transport Consulting are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Transport sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong and Anhui Transport

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

The idea behind Shandong Hi Speed RoadBridge and Anhui Transport Consulting 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.