Correlation Between Shantui Construction and Shuhua Sports

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

Diversification Opportunities for Shantui Construction and Shuhua Sports

0.81

Correlation Coefficient

Shantui Construction  Shuhua Sports

Very poor diversification

The 3 months correlation between Shantui and Shuhua is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Shantui Construction Machinery and Shuhua Sports Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shuhua Sports 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 Shuhua Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shuhua Sports has no effect on the direction of Shantui Construction i.e., Shantui Construction and Shuhua Sports go up and down completely randomly.

Pair Corralation between Shantui Construction and Shuhua Sports

Assuming the 90 days trading horizon Shantui Construction Machinery is expected to generate 1.36 times more return on investment than Shuhua Sports. However, Shantui Construction is 1.36 times more volatile than Shuhua Sports Co. It trades about 0.16 of its potential returns per unit of risk. Shuhua Sports Co is currently generating about 0.14 per unit of risk. If you would invest  776.00  in Shantui Construction Machinery on September 22, 2024 and sell it today you would earn a total of  172.00  from holding Shantui Construction Machinery or generate 22.16% 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.  Shuhua Sports 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.

Shuhua Sports

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shuhua Sports Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shuhua Sports sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shantui Construction and Shuhua Sports

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

The idea behind Shantui Construction Machinery and Shuhua Sports 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.