Correlation Between Shantui Construction and Allied Machinery

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

Diversification Opportunities for Shantui Construction and Allied Machinery

0.28

Correlation Coefficient

Shantui Construction  Allied Machinery

Modest diversification

The 3 months correlation between Shantui and Allied is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Shantui Construction Machinery and Allied Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Machinery 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 Allied Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Machinery has no effect on the direction of Shantui Construction i.e., Shantui Construction and Allied Machinery go up and down completely randomly.

Pair Corralation between Shantui Construction and Allied Machinery

Assuming the 90 days trading horizon Shantui Construction is expected to generate 9.62 times less return on investment than Allied Machinery. But when comparing it to its historical volatility, Shantui Construction Machinery is 1.75 times less risky than Allied Machinery. It trades about 0.02 of its potential returns per unit of risk. Allied Machinery Co is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,587  in Allied Machinery Co on December 26, 2024 and sell it today you would earn a total of  378.00  from holding Allied Machinery Co or generate 23.82% 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.  Allied Machinery Co

Shantui Construction

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shantui Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Allied Machinery

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Machinery Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Allied Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shantui Construction and Allied Machinery

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

The idea behind Shantui Construction Machinery and Allied Machinery 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.