Correlation Between Dongguan Aohai and Tengda Construction

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

By analyzing existing cross correlation between Dongguan Aohai Technology and Tengda Construction Group, you can compare the effects of market volatilities on Dongguan Aohai and Tengda 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 Dongguan Aohai with a short position of Tengda Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongguan Aohai and Tengda Construction.

Diversification Opportunities for Dongguan Aohai and Tengda Construction

0.03

Correlation Coefficient

Dongguan Aohai  Tengda Construction

Significant diversification

The 3 months correlation between Dongguan and Tengda is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Dongguan Aohai Technology and Tengda Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tengda Construction and Dongguan Aohai 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 Dongguan Aohai Technology are associated (or correlated) with Tengda Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tengda Construction has no effect on the direction of Dongguan Aohai i.e., Dongguan Aohai and Tengda Construction go up and down completely randomly.

Pair Corralation between Dongguan Aohai and Tengda Construction

Assuming the 90 days trading horizon Dongguan Aohai Technology is expected to generate 2.85 times more return on investment than Tengda Construction. However, Dongguan Aohai is 2.85 times more volatile than Tengda Construction Group. It trades about 0.03 of its potential returns per unit of risk. Tengda Construction Group is currently generating about -0.02 per unit of risk. If you would invest  4,072  in Dongguan Aohai Technology on December 26, 2024 and sell it today you would earn a total of  142.00  from holding Dongguan Aohai Technology or generate 3.49% return on investment over 90 days.

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

Dongguan Aohai Technology  vs.  Tengda Construction Group

Dongguan Aohai Technology

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dongguan Aohai Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongguan Aohai may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Tengda Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tengda Construction Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tengda 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 Dongguan Aohai and Tengda Construction

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

The idea behind Dongguan Aohai Technology and Tengda Construction Group 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 Transaction History module to view history of all your transactions and understand their impact on performance.