Correlation Between Shanghai Construction and Elite Color

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

Diversification Opportunities for Shanghai Construction and Elite Color

0.84

Correlation Coefficient

Shanghai Construction  Elite Color

Very poor diversification

The 3 months correlation between Shanghai and Elite is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Construction Group and Elite Color Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elite Color Environmental 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 Elite Color. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elite Color Environmental has no effect on the direction of Shanghai Construction i.e., Shanghai Construction and Elite Color go up and down completely randomly.

Pair Corralation between Shanghai Construction and Elite Color

Assuming the 90 days trading horizon Shanghai Construction Group is expected to generate 0.73 times more return on investment than Elite Color. However, Shanghai Construction Group is 1.38 times less risky than Elite Color. It trades about 0.02 of its potential returns per unit of risk. Elite Color Environmental is currently generating about 0.01 per unit of risk. If you would invest  251.00  in Shanghai Construction Group on October 3, 2024 and sell it today you would earn a total of  14.00  from holding Shanghai Construction Group or generate 5.58% return on investment over 90 days.

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

Shanghai Construction Group  vs.  Elite Color Environmental

Shanghai Construction

Risk-Adjusted Performance

3 of 100

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.

Elite Color Environmental

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Elite Color Environmental are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Elite Color 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 Elite Color

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

The idea behind Shanghai Construction Group and Elite Color Environmental 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.