Correlation Between BES Engineering and LongDa Construction

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

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

Diversification Opportunities for BES Engineering and LongDa Construction

0.61

Correlation Coefficient

BES Engineering  LongDa Construction

Poor diversification

The 3 months correlation between BES and LongDa is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding BES Engineering Co and LongDa Construction Developmen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LongDa Construction and BES 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 BES Engineering Co are associated (or correlated) with LongDa Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LongDa Construction has no effect on the direction of BES Engineering i.e., BES Engineering and LongDa Construction go up and down completely randomly.

Pair Corralation between BES Engineering and LongDa Construction

Assuming the 90 days trading horizon BES Engineering is expected to generate 2.23 times less return on investment than LongDa Construction. In addition to that, BES Engineering is 1.14 times more volatile than LongDa Construction Development. It trades about 0.05 of its total potential returns per unit of risk. LongDa Construction Development is currently generating about 0.14 per unit of volatility. If you would invest  3,390  in LongDa Construction Development on December 21, 2024 and sell it today you would earn a total of  410.00  from holding LongDa Construction Development or generate 12.09% return on investment over 90 days.

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

BES Engineering Co  vs.  LongDa Construction Developmen

BES Engineering

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BES Engineering Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, BES Engineering is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

LongDa Construction

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LongDa Construction Development are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, LongDa Construction showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BES Engineering and LongDa Construction

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

The idea behind BES Engineering Co and LongDa Construction Development 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.