Correlation Between Shantui Construction and Nanjing Putian

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

Diversification Opportunities for Shantui Construction and Nanjing Putian

0.3

Correlation Coefficient

Shantui Construction  Nanjing Putian

Weak diversification

The 3 months correlation between Shantui and Nanjing is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Shantui Construction Machinery and Nanjing Putian Telecommunicati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanjing Putian Telec 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 Nanjing Putian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanjing Putian Telec has no effect on the direction of Shantui Construction i.e., Shantui Construction and Nanjing Putian go up and down completely randomly.

Pair Corralation between Shantui Construction and Nanjing Putian

Assuming the 90 days trading horizon Shantui Construction Machinery is expected to generate 0.79 times more return on investment than Nanjing Putian. However, Shantui Construction Machinery is 1.26 times less risky than Nanjing Putian. It trades about 0.08 of its potential returns per unit of risk. Nanjing Putian Telecommunications is currently generating about 0.03 per unit of risk. If you would invest  437.00  in Shantui Construction Machinery on October 25, 2024 and sell it today you would earn a total of  574.00  from holding Shantui Construction Machinery or generate 131.35% return on investment over 90 days.

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

Shantui Construction Machinery  vs.  Nanjing Putian Telecommunicati

Shantui Construction

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 10 (%) 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.

Nanjing Putian Telec

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Shantui Construction and Nanjing Putian

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

The idea behind Shantui Construction Machinery and Nanjing Putian Telecommunications 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.