Correlation Between Hubei Xingfa and Shantui Construction

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

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

Diversification Opportunities for Hubei Xingfa and Shantui Construction

0.34

Correlation Coefficient

Hubei Xingfa  Shantui Construction

Weak diversification

The 3 months correlation between Hubei and Shantui is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Xingfa Chemicals and Shantui Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shantui Construction and Hubei Xingfa 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 Hubei Xingfa Chemicals 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 Hubei Xingfa i.e., Hubei Xingfa and Shantui Construction go up and down completely randomly.

Pair Corralation between Hubei Xingfa and Shantui Construction

Assuming the 90 days trading horizon Hubei Xingfa Chemicals is expected to under-perform the Shantui Construction. But the stock apears to be less risky and, when comparing its historical volatility, Hubei Xingfa Chemicals is 1.46 times less risky than Shantui Construction. The stock trades about -0.24 of its potential returns per unit of risk. The Shantui Construction Machinery is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  1,021  in Shantui Construction Machinery on October 6, 2024 and sell it today you would lose (36.00) from holding Shantui Construction Machinery or give up 3.53% of portfolio value over 90 days.

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

Hubei Xingfa Chemicals  vs.  Shantui Construction Machinery

Hubei Xingfa Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hubei Xingfa Chemicals 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.

Shantui Construction

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 8 (%) 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 Hubei Xingfa and Shantui Construction

The main advantage of trading using opposite Hubei Xingfa and Shantui Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hubei Xingfa 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 Hubei Xingfa Chemicals 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.