Correlation Between Beijing Compass and Shantui Construction

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

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

Diversification Opportunities for Beijing Compass and Shantui Construction

0.59

Correlation Coefficient

Beijing Compass  Shantui Construction

Very weak diversification

The 3 months correlation between Beijing and Shantui is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Compass Technology and Shantui Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shantui Construction and Beijing Compass 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 Beijing Compass Technology are associated (or correlated) with Shantui Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shantui Construction has no effect on the direction of Beijing Compass i.e., Beijing Compass and Shantui Construction go up and down completely randomly.

Pair Corralation between Beijing Compass and Shantui Construction

Assuming the 90 days trading horizon Beijing Compass is expected to generate 1.04 times less return on investment than Shantui Construction. In addition to that, Beijing Compass is 1.52 times more volatile than Shantui Construction Machinery. It trades about 0.05 of its total potential returns per unit of risk. Shantui Construction Machinery is currently generating about 0.08 per unit of volatility. If you would invest  408.00  in Shantui Construction Machinery on October 4, 2024 and sell it today you would earn a total of  550.00  from holding Shantui Construction Machinery or generate 134.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Beijing Compass Technology  vs.  Shantui Construction Machinery

Beijing Compass Tech

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Compass Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Compass sustained solid returns over the last few months and may actually be approaching a breakup point.

Shantui Construction

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shantui Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing Compass and Shantui Construction

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

The idea behind Beijing Compass Technology and Shantui Construction Machinery 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.