Correlation Between Shantui Construction and Beijing Bashi

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

Diversification Opportunities for Shantui Construction and Beijing Bashi

0.02

Correlation Coefficient

Shantui Construction  Beijing Bashi

Significant diversification

The 3 months correlation between Shantui and Beijing is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Shantui Construction Machinery and Beijing Bashi Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Bashi Media 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 Beijing Bashi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Bashi Media has no effect on the direction of Shantui Construction i.e., Shantui Construction and Beijing Bashi go up and down completely randomly.

Pair Corralation between Shantui Construction and Beijing Bashi

Assuming the 90 days trading horizon Shantui Construction Machinery is expected to generate 0.83 times more return on investment than Beijing Bashi. However, Shantui Construction Machinery is 1.21 times less risky than Beijing Bashi. It trades about 0.07 of its potential returns per unit of risk. Beijing Bashi Media is currently generating about -0.01 per unit of risk. If you would invest  971.00  in Shantui Construction Machinery on December 11, 2024 and sell it today you would earn a total of  99.00  from holding Shantui Construction Machinery or generate 10.2% return on investment over 90 days.

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

Shantui Construction Machinery  vs.  Beijing Bashi Media

Shantui Construction

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 5 (%) 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.

Beijing Bashi Media

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Shantui Construction and Beijing Bashi

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

The idea behind Shantui Construction Machinery and Beijing Bashi Media 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.