Correlation Between Shantui Construction and Zhejiang Orient

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

Diversification Opportunities for Shantui Construction and Zhejiang Orient

0.75

Correlation Coefficient

Shantui Construction  Zhejiang Orient

Poor diversification

The 3 months correlation between Shantui and Zhejiang is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Shantui Construction Machinery and Zhejiang Orient Gene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Orient Gene 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 Zhejiang Orient. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Orient Gene has no effect on the direction of Shantui Construction i.e., Shantui Construction and Zhejiang Orient go up and down completely randomly.

Pair Corralation between Shantui Construction and Zhejiang Orient

Assuming the 90 days trading horizon Shantui Construction Machinery is expected to generate 0.83 times more return on investment than Zhejiang Orient. However, Shantui Construction Machinery is 1.21 times less risky than Zhejiang Orient. It trades about 0.24 of its potential returns per unit of risk. Zhejiang Orient Gene is currently generating about 0.08 per unit of risk. If you would invest  670.00  in Shantui Construction Machinery on August 31, 2024 and sell it today you would earn a total of  369.00  from holding Shantui Construction Machinery or generate 55.07% return on investment over 90 days.

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

Shantui Construction Machinery  vs.  Zhejiang Orient Gene

Shantui Construction

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 19 (%) 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.

Zhejiang Orient Gene

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Orient Gene are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Orient sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shantui Construction and Zhejiang Orient

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

The idea behind Shantui Construction Machinery and Zhejiang Orient Gene 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.