Correlation Between Guangdong Jinming and Shanghai Construction

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

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

Diversification Opportunities for Guangdong Jinming and Shanghai Construction

0.92

Correlation Coefficient

Guangdong Jinming  Shanghai Construction

Almost no diversification

The 3 months correlation between Guangdong and Shanghai is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Jinming Machinery and Shanghai Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Construction and Guangdong Jinming 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 Guangdong Jinming Machinery are associated (or correlated) with Shanghai Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Construction has no effect on the direction of Guangdong Jinming i.e., Guangdong Jinming and Shanghai Construction go up and down completely randomly.

Pair Corralation between Guangdong Jinming and Shanghai Construction

Assuming the 90 days trading horizon Guangdong Jinming Machinery is expected to under-perform the Shanghai Construction. In addition to that, Guangdong Jinming is 1.23 times more volatile than Shanghai Construction Group. It trades about -0.01 of its total potential returns per unit of risk. Shanghai Construction Group is currently generating about 0.05 per unit of volatility. If you would invest  268.00  in Shanghai Construction Group on September 22, 2024 and sell it today you would earn a total of  5.00  from holding Shanghai Construction Group or generate 1.87% return on investment over 90 days.

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

Guangdong Jinming Machinery  vs.  Shanghai Construction Group

Guangdong Jinming

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Jinming Machinery are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Jinming sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Construction

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Construction Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Jinming and Shanghai Construction

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

The idea behind Guangdong Jinming Machinery and Shanghai 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.