Correlation Between Shenzhen Zhongzhuang and Masterwork Machinery

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

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

Diversification Opportunities for Shenzhen Zhongzhuang and Masterwork Machinery

0.8

Correlation Coefficient

Shenzhen Zhongzhuang  Masterwork Machinery

Very poor diversification

The 3 months correlation between Shenzhen and Masterwork is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Zhongzhuang Construct and Masterwork Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masterwork Machinery and Shenzhen Zhongzhuang 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 Zhongzhuang Construction are associated (or correlated) with Masterwork Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masterwork Machinery has no effect on the direction of Shenzhen Zhongzhuang i.e., Shenzhen Zhongzhuang and Masterwork Machinery go up and down completely randomly.

Pair Corralation between Shenzhen Zhongzhuang and Masterwork Machinery

Assuming the 90 days trading horizon Shenzhen Zhongzhuang is expected to generate 2.2 times less return on investment than Masterwork Machinery. In addition to that, Shenzhen Zhongzhuang is 1.03 times more volatile than Masterwork Machinery. It trades about 0.01 of its total potential returns per unit of risk. Masterwork Machinery is currently generating about 0.02 per unit of volatility. If you would invest  538.00  in Masterwork Machinery on October 4, 2024 and sell it today you would earn a total of  25.00  from holding Masterwork Machinery or generate 4.65% return on investment over 90 days.

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

Shenzhen Zhongzhuang Construct  vs.  Masterwork Machinery

Shenzhen Zhongzhuang

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Zhongzhuang Construction are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Zhongzhuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Masterwork Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shenzhen Zhongzhuang and Masterwork Machinery

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

The idea behind Shenzhen Zhongzhuang Construction and Masterwork 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.