Correlation Between City Development and Shaanxi Construction

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

By analyzing existing cross correlation between City Development Environment and Shaanxi Construction Machinery, you can compare the effects of market volatilities on City Development and Shaanxi 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 City Development with a short position of Shaanxi Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of City Development and Shaanxi Construction.

Diversification Opportunities for City Development and Shaanxi Construction

0.6

Correlation Coefficient

City Development  Shaanxi Construction

Poor diversification

The 3 months correlation between City and Shaanxi is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding City Development Environment and Shaanxi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Construction and City Development 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 City Development Environment are associated (or correlated) with Shaanxi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaanxi Construction has no effect on the direction of City Development i.e., City Development and Shaanxi Construction go up and down completely randomly.

Pair Corralation between City Development and Shaanxi Construction

Assuming the 90 days trading horizon City Development is expected to generate 4.08 times less return on investment than Shaanxi Construction. But when comparing it to its historical volatility, City Development Environment is 1.83 times less risky than Shaanxi Construction. It trades about 0.01 of its potential returns per unit of risk. Shaanxi Construction Machinery is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  336.00  in Shaanxi Construction Machinery on October 26, 2024 and sell it today you would lose (2.00) from holding Shaanxi Construction Machinery or give up 0.6% of portfolio value over 90 days.

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

City Development Environment  vs.  Shaanxi Construction Machinery

City Development Env

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days City Development Environment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, City Development is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shaanxi Construction

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with City Development and Shaanxi Construction

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

The idea behind City Development Environment and Shaanxi Construction Machinery 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..