Correlation Between Hongrun Construction and Jiangsu Pacific

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

Diversification Opportunities for Hongrun Construction and Jiangsu Pacific

0.87

Correlation Coefficient

Hongrun Construction  Jiangsu Pacific

Very poor diversification

The 3 months correlation between Hongrun and Jiangsu is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Hongrun Construction Group and Jiangsu Pacific Quartz in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Pacific Quartz 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 Jiangsu Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Pacific Quartz has no effect on the direction of Hongrun Construction i.e., Hongrun Construction and Jiangsu Pacific go up and down completely randomly.

Pair Corralation between Hongrun Construction and Jiangsu Pacific

Assuming the 90 days trading horizon Hongrun Construction Group is expected to generate 0.74 times more return on investment than Jiangsu Pacific. However, Hongrun Construction Group is 1.36 times less risky than Jiangsu Pacific. It trades about 0.21 of its potential returns per unit of risk. Jiangsu Pacific Quartz is currently generating about 0.12 per unit of risk. If you would invest  335.00  in Hongrun Construction Group on September 2, 2024 and sell it today you would earn a total of  130.00  from holding Hongrun Construction Group or generate 38.81% return on investment over 90 days.

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

Hongrun Construction Group  vs.  Jiangsu Pacific Quartz

Hongrun Construction

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hongrun Construction Group are ranked lower than 16 (%) 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.

Jiangsu Pacific Quartz

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangsu Pacific Quartz are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangsu Pacific sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hongrun Construction and Jiangsu Pacific

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

The idea behind Hongrun Construction Group and Jiangsu Pacific Quartz 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.