Correlation Between GS Engineering and Hanshin Construction

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

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

Diversification Opportunities for GS Engineering and Hanshin Construction

0.35

Correlation Coefficient

GS Engineering  Hanshin Construction

Weak diversification

The 3 months correlation between 006360 and Hanshin is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding GS Engineering Construction and Hanshin Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanshin Construction and GS Engineering 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 GS Engineering Construction are associated (or correlated) with Hanshin Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanshin Construction has no effect on the direction of GS Engineering i.e., GS Engineering and Hanshin Construction go up and down completely randomly.

Pair Corralation between GS Engineering and Hanshin Construction

Assuming the 90 days trading horizon GS Engineering Construction is expected to generate 0.88 times more return on investment than Hanshin Construction. However, GS Engineering Construction is 1.13 times less risky than Hanshin Construction. It trades about -0.02 of its potential returns per unit of risk. Hanshin Construction Co is currently generating about -0.02 per unit of risk. If you would invest  1,866,000  in GS Engineering Construction on October 8, 2024 and sell it today you would lose (71,000) from holding GS Engineering Construction or give up 3.8% of portfolio value over 90 days.

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

GS Engineering Construction  vs.  Hanshin Construction Co

GS Engineering Const

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hanshin Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hanshin Construction Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hanshin 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 GS Engineering and Hanshin Construction

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

The idea behind GS Engineering Construction and Hanshin 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.

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.