Correlation Between Shantui Construction and Hongrun Construction

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

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

Diversification Opportunities for Shantui Construction and Hongrun Construction

0.74

Correlation Coefficient

Shantui Construction  Hongrun Construction

Poor diversification

The 3 months correlation between Shantui and Hongrun is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Shantui Construction Machinery and Hongrun Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hongrun Construction and Shantui Construction 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 Shantui Construction Machinery 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 Shantui Construction i.e., Shantui Construction and Hongrun Construction go up and down completely randomly.

Pair Corralation between Shantui Construction and Hongrun Construction

Assuming the 90 days trading horizon Shantui Construction Machinery is expected to generate 1.28 times more return on investment than Hongrun Construction. However, Shantui Construction is 1.28 times more volatile than Hongrun Construction Group. It trades about 0.08 of its potential returns per unit of risk. Hongrun Construction Group is currently generating about 0.01 per unit of risk. If you would invest  414.00  in Shantui Construction Machinery on October 9, 2024 and sell it today you would earn a total of  573.00  from holding Shantui Construction Machinery or generate 138.41% return on investment over 90 days.

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

Shantui Construction Machinery  vs.  Hongrun Construction Group

Shantui Construction

Risk-Adjusted Performance

11 of 100

Good

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

Hongrun Construction

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hongrun Construction Group are ranked lower than 12 (%) 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 Shantui Construction and Hongrun Construction

The main advantage of trading using opposite Shantui Construction and Hongrun Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shantui Construction 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 Shantui Construction Machinery 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.