Correlation Between TongFu Microelectronics and Shantui Construction

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

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

Diversification Opportunities for TongFu Microelectronics and Shantui Construction

-0.01

Correlation Coefficient

TongFu Microelectronics  Shantui Construction

Good diversification

The 3 months correlation between TongFu and Shantui is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding TongFu Microelectronics Co and Shantui Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shantui Construction and TongFu Microelectronics 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 TongFu Microelectronics Co are associated (or correlated) with Shantui Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shantui Construction has no effect on the direction of TongFu Microelectronics i.e., TongFu Microelectronics and Shantui Construction go up and down completely randomly.

Pair Corralation between TongFu Microelectronics and Shantui Construction

Assuming the 90 days trading horizon TongFu Microelectronics Co is expected to generate 1.1 times more return on investment than Shantui Construction. However, TongFu Microelectronics is 1.1 times more volatile than Shantui Construction Machinery. It trades about -0.05 of its potential returns per unit of risk. Shantui Construction Machinery is currently generating about -0.06 per unit of risk. If you would invest  3,148  in TongFu Microelectronics Co on December 2, 2024 and sell it today you would lose (297.00) from holding TongFu Microelectronics Co or give up 9.43% of portfolio value over 90 days.

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

TongFu Microelectronics Co  vs.  Shantui Construction Machinery

TongFu Microelectronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days TongFu Microelectronics Co 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.

Shantui Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shantui Construction Machinery 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.

Pair Trading with TongFu Microelectronics and Shantui Construction

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

The idea behind TongFu Microelectronics Co and Shantui 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.