Correlation Between Shanghai Construction and Xingguang Agricultural

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

Diversification Opportunities for Shanghai Construction and Xingguang Agricultural

0.91

Correlation Coefficient

Shanghai Construction  Xingguang Agricultural

Almost no diversification

The 3 months correlation between Shanghai and Xingguang is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Construction Group and Xingguang Agricultural Mach in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xingguang Agricultural 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 Xingguang Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xingguang Agricultural has no effect on the direction of Shanghai Construction i.e., Shanghai Construction and Xingguang Agricultural go up and down completely randomly.

Pair Corralation between Shanghai Construction and Xingguang Agricultural

Assuming the 90 days trading horizon Shanghai Construction is expected to generate 2.94 times less return on investment than Xingguang Agricultural. But when comparing it to its historical volatility, Shanghai Construction Group is 2.13 times less risky than Xingguang Agricultural. It trades about 0.03 of its potential returns per unit of risk. Xingguang Agricultural Mach is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  887.00  in Xingguang Agricultural Mach on September 21, 2024 and sell it today you would earn a total of  194.00  from holding Xingguang Agricultural Mach or generate 21.87% return on investment over 90 days.

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

Shanghai Construction Group  vs.  Xingguang Agricultural Mach

Shanghai Construction

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Construction Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Xingguang Agricultural

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xingguang Agricultural Mach are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xingguang Agricultural sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Construction and Xingguang Agricultural

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

The idea behind Shanghai Construction Group and Xingguang Agricultural Mach 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.