Correlation Between Guangdong Jinming and Tengda Construction

Can any of the company-specific risk be diversified away by investing in both Guangdong Jinming 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 Guangdong Jinming and Tengda 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 Tengda Construction Group, you can compare the effects of market volatilities on Guangdong Jinming 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 Guangdong Jinming with a short position of Tengda Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Jinming and Tengda Construction.

Diversification Opportunities for Guangdong Jinming and Tengda Construction

0.92

Correlation Coefficient

Guangdong Jinming  Tengda Construction

Almost no diversification

The 3 months correlation between Guangdong and Tengda is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Jinming Machinery and Tengda Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tengda 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 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 Guangdong Jinming i.e., Guangdong Jinming and Tengda Construction go up and down completely randomly.

Pair Corralation between Guangdong Jinming and Tengda Construction

Assuming the 90 days trading horizon Guangdong Jinming Machinery is expected to generate 1.72 times more return on investment than Tengda Construction. However, Guangdong Jinming is 1.72 times more volatile than Tengda Construction Group. It trades about 0.2 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  569.00  in Guangdong Jinming Machinery on December 4, 2024 and sell it today you would earn a total of  46.00  from holding Guangdong Jinming Machinery or generate 8.08% 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.  Tengda Construction Group

Guangdong Jinming

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangdong Jinming Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Guangdong Jinming and Tengda Construction

The main advantage of trading using opposite Guangdong Jinming and Tengda Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guangdong Jinming 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 Guangdong Jinming Machinery 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .