Correlation Between Zoje Resources and Shaanxi Construction

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Can any of the company-specific risk be diversified away by investing in both Zoje Resources 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 Zoje Resources and Shaanxi Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Zoje Resources Investment and Shaanxi Construction Machinery, you can compare the effects of market volatilities on Zoje Resources 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 Zoje Resources with a short position of Shaanxi Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zoje Resources and Shaanxi Construction.

Diversification Opportunities for Zoje Resources and Shaanxi Construction

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Zoje and Shaanxi is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Zoje Resources Investment and Shaanxi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Construction and Zoje Resources 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 Zoje Resources Investment 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 Zoje Resources i.e., Zoje Resources and Shaanxi Construction go up and down completely randomly.

Pair Corralation between Zoje Resources and Shaanxi Construction

Assuming the 90 days trading horizon Zoje Resources Investment is expected to generate 1.05 times more return on investment than Shaanxi Construction. However, Zoje Resources is 1.05 times more volatile than Shaanxi Construction Machinery. It trades about 0.15 of its potential returns per unit of risk. Shaanxi Construction Machinery is currently generating about 0.08 per unit of risk. If you would invest  188.00  in Zoje Resources Investment on October 10, 2024 and sell it today you would earn a total of  81.00  from holding Zoje Resources Investment or generate 43.09% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Zoje Resources Investment  vs.  Shaanxi Construction Machinery

 Performance 
       Timeline  
Zoje Resources Investment 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Zoje Resources Investment are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zoje Resources sustained solid returns over the last few months and may actually be approaching a breakup point.
Shaanxi Construction 

Risk-Adjusted Performance

6 of 100

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

Zoje Resources and Shaanxi Construction Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Zoje Resources and Shaanxi Construction

The main advantage of trading using opposite Zoje Resources and Shaanxi Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zoje Resources 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 Zoje Resources Investment 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.
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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.

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