Correlation Between Shenzhen MTC and Tengda Construction

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

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

Diversification Opportunities for Shenzhen MTC and Tengda Construction

-0.18

Correlation Coefficient

Shenzhen MTC  Tengda Construction

Good diversification

The 3 months correlation between Shenzhen and Tengda is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen MTC Co and Tengda Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tengda Construction and Shenzhen MTC 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 Shenzhen MTC Co are associated (or correlated) with Tengda Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tengda Construction has no effect on the direction of Shenzhen MTC i.e., Shenzhen MTC and Tengda Construction go up and down completely randomly.

Pair Corralation between Shenzhen MTC and Tengda Construction

Assuming the 90 days trading horizon Shenzhen MTC Co is expected to generate 1.51 times more return on investment than Tengda Construction. However, Shenzhen MTC is 1.51 times more volatile than Tengda Construction Group. It trades about 0.03 of its potential returns per unit of risk. Tengda Construction Group is currently generating about -0.08 per unit of risk. If you would invest  516.00  in Shenzhen MTC Co on December 2, 2024 and sell it today you would earn a total of  12.00  from holding Shenzhen MTC Co or generate 2.33% return on investment over 90 days.

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

Shenzhen MTC Co  vs.  Tengda Construction Group

Shenzhen MTC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen MTC Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shenzhen MTC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tengda Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tengda Construction Group 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 Shenzhen MTC and Tengda Construction

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

The idea behind Shenzhen MTC Co and Tengda Construction Group 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.