Correlation Between Shantui Construction and BYD Co

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

Diversification Opportunities for Shantui Construction and BYD Co

-0.6

Correlation Coefficient

Shantui Construction  BYD Co

Excellent diversification

The 3 months correlation between Shantui and BYD is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Shantui Construction Machinery and BYD Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Co 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 BYD Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Co has no effect on the direction of Shantui Construction i.e., Shantui Construction and BYD Co go up and down completely randomly.

Pair Corralation between Shantui Construction and BYD Co

Assuming the 90 days trading horizon Shantui Construction Machinery is expected to generate 1.09 times more return on investment than BYD Co. However, Shantui Construction is 1.09 times more volatile than BYD Co Ltd. It trades about -0.07 of its potential returns per unit of risk. BYD Co Ltd is currently generating about -0.11 per unit of risk. If you would invest  1,010  in Shantui Construction Machinery on October 8, 2024 and sell it today you would lose (25.00) from holding Shantui Construction Machinery or give up 2.48% of portfolio value over 90 days.

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

Shantui Construction Machinery  vs.  BYD Co Ltd

Shantui Construction

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 7 (%) 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.

BYD Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BYD Co Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shantui Construction and BYD Co

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

The idea behind Shantui Construction Machinery and BYD Co Ltd 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.