Correlation Between Shining Building and Pacific Construction

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

By analyzing existing cross correlation between Shining Building Business and Pacific Construction Co, you can compare the effects of market volatilities on Shining Building and Pacific 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 Shining Building with a short position of Pacific Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shining Building and Pacific Construction.

Diversification Opportunities for Shining Building and Pacific Construction

-0.04

Correlation Coefficient

Shining Building  Pacific Construction

Good diversification

The 3 months correlation between Shining and Pacific is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Shining Building Business and Pacific Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Construction and Shining Building 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 Shining Building Business are associated (or correlated) with Pacific Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Construction has no effect on the direction of Shining Building i.e., Shining Building and Pacific Construction go up and down completely randomly.

Pair Corralation between Shining Building and Pacific Construction

Assuming the 90 days trading horizon Shining Building Business is expected to generate 0.72 times more return on investment than Pacific Construction. However, Shining Building Business is 1.38 times less risky than Pacific Construction. It trades about 0.03 of its potential returns per unit of risk. Pacific Construction Co is currently generating about 0.02 per unit of risk. If you would invest  1,045  in Shining Building Business on December 22, 2024 and sell it today you would earn a total of  20.00  from holding Shining Building Business or generate 1.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.25%
Values	Daily Returns

Shining Building Business  vs.  Pacific Construction Co

Shining Building Business

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shining Building Business are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Shining Building is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pacific Construction

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Construction Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Pacific Construction is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Shining Building and Pacific Construction

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

The idea behind Shining Building Business and Pacific Construction Co 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.