Correlation Between Shantui Construction and Hengdian Entertainment

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

Diversification Opportunities for Shantui Construction and Hengdian Entertainment

0.89

Correlation Coefficient

Shantui Construction  Hengdian Entertainment

Very poor diversification

The 3 months correlation between Shantui and Hengdian is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Shantui Construction Machinery and Hengdian Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengdian Entertainment 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 Hengdian Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengdian Entertainment has no effect on the direction of Shantui Construction i.e., Shantui Construction and Hengdian Entertainment go up and down completely randomly.

Pair Corralation between Shantui Construction and Hengdian Entertainment

Assuming the 90 days trading horizon Shantui Construction is expected to generate 1.62 times less return on investment than Hengdian Entertainment. But when comparing it to its historical volatility, Shantui Construction Machinery is 1.24 times less risky than Hengdian Entertainment. It trades about 0.16 of its potential returns per unit of risk. Hengdian Entertainment Co is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  985.00  in Hengdian Entertainment Co on September 21, 2024 and sell it today you would earn a total of  577.00  from holding Hengdian Entertainment Co or generate 58.58% return on investment over 90 days.

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

Shantui Construction Machinery  vs.  Hengdian Entertainment Co

Shantui Construction

Risk-Adjusted Performance

12 of 100

Good

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

Hengdian Entertainment

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hengdian Entertainment Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengdian Entertainment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shantui Construction and Hengdian Entertainment

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

The idea behind Shantui Construction Machinery and Hengdian Entertainment Co 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.