Correlation Between Anhui Huaren and Shanghai Construction

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

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

Diversification Opportunities for Anhui Huaren and Shanghai Construction

0.5

Correlation Coefficient

Anhui Huaren  Shanghai Construction

Very weak diversification

The 3 months correlation between Anhui and Shanghai is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Huaren Health and Shanghai Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Construction and Anhui Huaren 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 Anhui Huaren Health 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 Anhui Huaren i.e., Anhui Huaren and Shanghai Construction go up and down completely randomly.

Pair Corralation between Anhui Huaren and Shanghai Construction

Assuming the 90 days trading horizon Anhui Huaren Health is expected to under-perform the Shanghai Construction. In addition to that, Anhui Huaren is 1.05 times more volatile than Shanghai Construction Group. It trades about -0.16 of its total potential returns per unit of risk. Shanghai Construction Group is currently generating about -0.06 per unit of volatility. If you would invest  272.00  in Shanghai Construction Group on October 7, 2024 and sell it today you would lose (22.00) from holding Shanghai Construction Group or give up 8.09% of portfolio value over 90 days.

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

Anhui Huaren Health  vs.  Shanghai Construction Group

Anhui Huaren Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Anhui Huaren Health 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shanghai Construction

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Construction Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Anhui Huaren and Shanghai Construction

The main advantage of trading using opposite Anhui Huaren and Shanghai Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Anhui Huaren 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 Anhui Huaren Health 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.