Correlation Between Zhejiang Construction and Shandong

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

By analyzing existing cross correlation between Zhejiang Construction Investment and Shandong Hi Speed RoadBridge, you can compare the effects of market volatilities on Zhejiang Construction and Shandong 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 Zhejiang Construction with a short position of Shandong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Construction and Shandong.

Diversification Opportunities for Zhejiang Construction and Shandong

0.65

Correlation Coefficient

Zhejiang Construction  Shandong

Poor diversification

The 3 months correlation between Zhejiang and Shandong is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Construction Investme and Shandong Hi Speed RoadBridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Hi Speed and Zhejiang 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 Zhejiang Construction Investment are associated (or correlated) with Shandong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Hi Speed has no effect on the direction of Zhejiang Construction i.e., Zhejiang Construction and Shandong go up and down completely randomly.

Pair Corralation between Zhejiang Construction and Shandong

Assuming the 90 days trading horizon Zhejiang Construction Investment is expected to under-perform the Shandong. In addition to that, Zhejiang Construction is 1.59 times more volatile than Shandong Hi Speed RoadBridge. It trades about -0.05 of its total potential returns per unit of risk. Shandong Hi Speed RoadBridge is currently generating about 0.0 per unit of volatility. If you would invest  654.00  in Shandong Hi Speed RoadBridge on September 26, 2024 and sell it today you would lose (44.00) from holding Shandong Hi Speed RoadBridge or give up 6.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Zhejiang Construction Investme  vs.  Shandong Hi Speed RoadBridge

Zhejiang Construction

Risk-Adjusted Performance

6 of 100

Modest

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

Shandong Hi Speed

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hi Speed RoadBridge are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Zhejiang Construction and Shandong

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

The idea behind Zhejiang Construction Investment and Shandong Hi Speed RoadBridge 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.