Correlation Between Shanghai Construction and Hunan Mendale

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Can any of the company-specific risk be diversified away by investing in both Shanghai Construction and Hunan Mendale 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 Shanghai Construction and Hunan Mendale into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shanghai Construction Group and Hunan Mendale Hometextile, you can compare the effects of market volatilities on Shanghai Construction and Hunan Mendale 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 Shanghai Construction with a short position of Hunan Mendale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Construction and Hunan Mendale.

Diversification Opportunities for Shanghai Construction and Hunan Mendale

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Shanghai and Hunan is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Construction Group and Hunan Mendale Hometextile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunan Mendale Hometextile and Shanghai Construction 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 Shanghai Construction Group are associated (or correlated) with Hunan Mendale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunan Mendale Hometextile has no effect on the direction of Shanghai Construction i.e., Shanghai Construction and Hunan Mendale go up and down completely randomly.

Pair Corralation between Shanghai Construction and Hunan Mendale

Assuming the 90 days trading horizon Shanghai Construction is expected to generate 1.93 times less return on investment than Hunan Mendale. But when comparing it to its historical volatility, Shanghai Construction Group is 1.39 times less risky than Hunan Mendale. It trades about 0.09 of its potential returns per unit of risk. Hunan Mendale Hometextile is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  186.00  in Hunan Mendale Hometextile on October 4, 2024 and sell it today you would earn a total of  108.00  from holding Hunan Mendale Hometextile or generate 58.06% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Shanghai Construction Group  vs.  Hunan Mendale Hometextile

 Performance 
       Timeline  
Shanghai Construction 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Construction Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Construction may actually be approaching a critical reversion point that can send shares even higher in February 2025.
Hunan Mendale Hometextile 

Risk-Adjusted Performance

6 of 100

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

Shanghai Construction and Hunan Mendale Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Shanghai Construction and Hunan Mendale

The main advantage of trading using opposite Shanghai Construction and Hunan Mendale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Construction position performs unexpectedly, Hunan Mendale 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 Hunan Mendale will offset losses from the drop in Hunan Mendale's long position.
The idea behind Shanghai Construction Group and Hunan Mendale Hometextile 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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