Correlation Between Beijing HuaYuanYiTong and Shaanxi Construction

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

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

Diversification Opportunities for Beijing HuaYuanYiTong and Shaanxi Construction

0.58

Correlation Coefficient

Beijing HuaYuanYiTong  Shaanxi Construction

Very weak diversification

The 3 months correlation between Beijing and Shaanxi is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Beijing HuaYuanYiTong Thermal and Shaanxi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Construction and Beijing HuaYuanYiTong 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 Beijing HuaYuanYiTong Thermal are associated (or correlated) with Shaanxi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaanxi Construction has no effect on the direction of Beijing HuaYuanYiTong i.e., Beijing HuaYuanYiTong and Shaanxi Construction go up and down completely randomly.

Pair Corralation between Beijing HuaYuanYiTong and Shaanxi Construction

Assuming the 90 days trading horizon Beijing HuaYuanYiTong Thermal is expected to generate 0.77 times more return on investment than Shaanxi Construction. However, Beijing HuaYuanYiTong Thermal is 1.31 times less risky than Shaanxi Construction. It trades about -0.08 of its potential returns per unit of risk. Shaanxi Construction Machinery is currently generating about -0.09 per unit of risk. If you would invest  1,068  in Beijing HuaYuanYiTong Thermal on October 6, 2024 and sell it today you would lose (119.00) from holding Beijing HuaYuanYiTong Thermal or give up 11.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.73%
Values	Daily Returns

Beijing HuaYuanYiTong Thermal  vs.  Shaanxi Construction Machinery

Beijing HuaYuanYiTong

Risk-Adjusted Performance

0 of 100

Very Weak

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

Shaanxi Construction

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Shaanxi Construction Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Shaanxi Construction may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Beijing HuaYuanYiTong and Shaanxi Construction

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

The idea behind Beijing HuaYuanYiTong Thermal and Shaanxi Construction 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.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.