Correlation Between Ningxia Xiaoming and Shanghai Construction

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

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

Diversification Opportunities for Ningxia Xiaoming and Shanghai Construction

0.61

Correlation Coefficient

Ningxia Xiaoming  Shanghai Construction

Poor diversification

The 3 months correlation between Ningxia and Shanghai is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ningxia Xiaoming Agriculture and Shanghai Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Construction and Ningxia Xiaoming 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 Ningxia Xiaoming Agriculture 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 Ningxia Xiaoming i.e., Ningxia Xiaoming and Shanghai Construction go up and down completely randomly.

Pair Corralation between Ningxia Xiaoming and Shanghai Construction

Assuming the 90 days trading horizon Ningxia Xiaoming Agriculture is expected to generate 1.41 times more return on investment than Shanghai Construction. However, Ningxia Xiaoming is 1.41 times more volatile than Shanghai Construction Group. It trades about -0.01 of its potential returns per unit of risk. Shanghai Construction Group is currently generating about -0.06 per unit of risk. If you would invest  1,324  in Ningxia Xiaoming Agriculture on December 5, 2024 and sell it today you would lose (48.00) from holding Ningxia Xiaoming Agriculture or give up 3.63% of portfolio value over 90 days.

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

Ningxia Xiaoming Agriculture  vs.  Shanghai Construction Group

Ningxia Xiaoming Agr

Risk-Adjusted Performance

Very Weak

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

Shanghai Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Construction Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai 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 Ningxia Xiaoming and Shanghai Construction

The main advantage of trading using opposite Ningxia Xiaoming and Shanghai Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ningxia Xiaoming 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 Ningxia Xiaoming Agriculture 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.