Correlation Between Hongrun Construction and Shanghai Shuixing

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

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

Diversification Opportunities for Hongrun Construction and Shanghai Shuixing

0.9

Correlation Coefficient

Hongrun Construction  Shanghai Shuixing

Almost no diversification

The 3 months correlation between Hongrun and Shanghai is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Hongrun Construction Group and Shanghai Shuixing Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Shuixing Home and Hongrun 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 Hongrun Construction Group are associated (or correlated) with Shanghai Shuixing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Shuixing Home has no effect on the direction of Hongrun Construction i.e., Hongrun Construction and Shanghai Shuixing go up and down completely randomly.

Pair Corralation between Hongrun Construction and Shanghai Shuixing

Assuming the 90 days trading horizon Hongrun Construction is expected to generate 1.59 times less return on investment than Shanghai Shuixing. But when comparing it to its historical volatility, Hongrun Construction Group is 1.4 times less risky than Shanghai Shuixing. It trades about 0.08 of its potential returns per unit of risk. Shanghai Shuixing Home is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,499  in Shanghai Shuixing Home on September 19, 2024 and sell it today you would earn a total of  93.00  from holding Shanghai Shuixing Home or generate 6.2% return on investment over 90 days.

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

Hongrun Construction Group  vs.  Shanghai Shuixing Home

Hongrun Construction

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hongrun Construction Group are ranked lower than 15 (%) 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.

Shanghai Shuixing Home

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Shuixing Home are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Shuixing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hongrun Construction and Shanghai Shuixing

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

The idea behind Hongrun Construction Group and Shanghai Shuixing Home 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.