Correlation Between Zhongshan Public and Hongrun Construction

Can any of the company-specific risk be diversified away by investing in both Zhongshan Public and Hongrun Construction 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 Zhongshan Public and Hongrun Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhongshan Public Utilities and Hongrun Construction Group, you can compare the effects of market volatilities on Zhongshan Public and Hongrun Construction 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 Zhongshan Public with a short position of Hongrun Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongshan Public and Hongrun Construction.

Diversification Opportunities for Zhongshan Public and Hongrun Construction

0.7

Correlation Coefficient

Zhongshan Public  Hongrun Construction

Poor diversification

The 3 months correlation between Zhongshan and Hongrun is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Zhongshan Public Utilities and Hongrun Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hongrun Construction and Zhongshan Public 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 Zhongshan Public Utilities are associated (or correlated) with Hongrun Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hongrun Construction has no effect on the direction of Zhongshan Public i.e., Zhongshan Public and Hongrun Construction go up and down completely randomly.

Pair Corralation between Zhongshan Public and Hongrun Construction

Assuming the 90 days trading horizon Zhongshan Public Utilities is expected to under-perform the Hongrun Construction. But the stock apears to be less risky and, when comparing its historical volatility, Zhongshan Public Utilities is 1.45 times less risky than Hongrun Construction. The stock trades about -0.08 of its potential returns per unit of risk. The Hongrun Construction Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  419.00  in Hongrun Construction Group on October 6, 2024 and sell it today you would earn a total of  103.00  from holding Hongrun Construction Group or generate 24.58% return on investment over 90 days.

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

Zhongshan Public Utilities  vs.  Hongrun Construction Group

Zhongshan Public Uti

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhongshan Public Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Hongrun Construction

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hongrun Construction Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hongrun Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhongshan Public and Hongrun Construction

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

The idea behind Zhongshan Public Utilities and Hongrun Construction Group 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.