Correlation Between Zhejiang Construction and Allied Machinery

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

Diversification Opportunities for Zhejiang Construction and Allied Machinery

-0.32

Correlation Coefficient

Zhejiang Construction  Allied Machinery

Very good diversification

The 3 months correlation between Zhejiang and Allied is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Construction Investme and Allied Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Machinery 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 Allied Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Machinery has no effect on the direction of Zhejiang Construction i.e., Zhejiang Construction and Allied Machinery go up and down completely randomly.

Pair Corralation between Zhejiang Construction and Allied Machinery

Assuming the 90 days trading horizon Zhejiang Construction Investment is expected to under-perform the Allied Machinery. But the stock apears to be less risky and, when comparing its historical volatility, Zhejiang Construction Investment is 1.13 times less risky than Allied Machinery. The stock trades about -0.03 of its potential returns per unit of risk. The Allied Machinery Co is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,539  in Allied Machinery Co on October 26, 2024 and sell it today you would earn a total of  472.00  from holding Allied Machinery Co or generate 30.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Zhejiang Construction Investme  vs.  Allied Machinery 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.

Allied Machinery

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Machinery Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Allied Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhejiang Construction and Allied Machinery

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

The idea behind Zhejiang Construction Investment and Allied Machinery 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.