Correlation Between Zhejiang Construction and Ningbo Construction

Can any of the company-specific risk be diversified away by investing in both Zhejiang Construction and Ningbo 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 Zhejiang Construction and Ningbo Construction 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 Ningbo Construction Co, you can compare the effects of market volatilities on Zhejiang Construction and Ningbo 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 Zhejiang Construction with a short position of Ningbo Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Construction and Ningbo Construction.

Diversification Opportunities for Zhejiang Construction and Ningbo Construction

0.78

Correlation Coefficient

Zhejiang Construction  Ningbo Construction

Poor diversification

The 3 months correlation between Zhejiang and Ningbo is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Construction Investme and Ningbo Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Construction 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 Ningbo Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Construction has no effect on the direction of Zhejiang Construction i.e., Zhejiang Construction and Ningbo Construction go up and down completely randomly.

Pair Corralation between Zhejiang Construction and Ningbo Construction

Assuming the 90 days trading horizon Zhejiang Construction Investment is expected to under-perform the Ningbo Construction. But the stock apears to be less risky and, when comparing its historical volatility, Zhejiang Construction Investment is 1.51 times less risky than Ningbo Construction. The stock trades about -0.28 of its potential returns per unit of risk. The Ningbo Construction Co is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  439.00  in Ningbo Construction Co on October 26, 2024 and sell it today you would lose (26.00) from holding Ningbo Construction Co or give up 5.92% of portfolio value over 90 days.

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

Zhejiang Construction Investme  vs.  Ningbo Construction Co

Zhejiang Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhejiang Construction Investment 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.

Ningbo Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ningbo Construction Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ningbo Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Zhejiang Construction and Ningbo Construction

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

The idea behind Zhejiang Construction Investment and Ningbo Construction Co 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.