Correlation Between Shantui Construction and Shanghai OPM

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

Diversification Opportunities for Shantui Construction and Shanghai OPM

0.47

Correlation Coefficient

Shantui Construction  Shanghai OPM

Very weak diversification

The 3 months correlation between Shantui and Shanghai is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Shantui Construction Machinery and Shanghai OPM Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai OPM Biosciences 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 Shanghai OPM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai OPM Biosciences has no effect on the direction of Shantui Construction i.e., Shantui Construction and Shanghai OPM go up and down completely randomly.

Pair Corralation between Shantui Construction and Shanghai OPM

Assuming the 90 days trading horizon Shantui Construction Machinery is expected to generate 0.81 times more return on investment than Shanghai OPM. However, Shantui Construction Machinery is 1.24 times less risky than Shanghai OPM. It trades about 0.08 of its potential returns per unit of risk. Shanghai OPM Biosciences 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	Weak
Accuracy	100.0%
Values	Daily Returns

Shantui Construction Machinery  vs.  Shanghai OPM Biosciences

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.

Shanghai OPM Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai OPM Biosciences has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai OPM 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 Shanghai OPM

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

The idea behind Shantui Construction Machinery and Shanghai OPM Biosciences 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.