Correlation Between Shanghai Construction and Yunnan Chuangxin

Can any of the company-specific risk be diversified away by investing in both Shanghai Construction and Yunnan Chuangxin 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 Yunnan Chuangxin 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 Yunnan Chuangxin New, you can compare the effects of market volatilities on Shanghai Construction and Yunnan Chuangxin 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 Yunnan Chuangxin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Construction and Yunnan Chuangxin.

Diversification Opportunities for Shanghai Construction and Yunnan Chuangxin

0.49

Correlation Coefficient

Shanghai Construction  Yunnan Chuangxin

Very weak diversification

The 3 months correlation between Shanghai and Yunnan is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Construction Group and Yunnan Chuangxin New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yunnan Chuangxin New 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 Yunnan Chuangxin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yunnan Chuangxin New has no effect on the direction of Shanghai Construction i.e., Shanghai Construction and Yunnan Chuangxin go up and down completely randomly.

Pair Corralation between Shanghai Construction and Yunnan Chuangxin

Assuming the 90 days trading horizon Shanghai Construction Group is expected to under-perform the Yunnan Chuangxin. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Construction Group is 1.61 times less risky than Yunnan Chuangxin. The stock trades about -0.11 of its potential returns per unit of risk. The Yunnan Chuangxin New is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3,310  in Yunnan Chuangxin New on December 30, 2024 and sell it today you would lose (154.00) from holding Yunnan Chuangxin New or give up 4.65% of portfolio value over 90 days.

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

Shanghai Construction Group  vs.  Yunnan Chuangxin New

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 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.

Yunnan Chuangxin New

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Shanghai Construction and Yunnan Chuangxin

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

The idea behind Shanghai Construction Group and Yunnan Chuangxin New 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.