Correlation Between Long Yuan and Tengda Construction

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

By analyzing existing cross correlation between Long Yuan Construction and Tengda Construction Group, you can compare the effects of market volatilities on Long Yuan and Tengda 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 Long Yuan with a short position of Tengda Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Yuan and Tengda Construction.

Diversification Opportunities for Long Yuan and Tengda Construction

0.93

Correlation Coefficient

Long Yuan  Tengda Construction

Almost no diversification

The 3 months correlation between Long and Tengda is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Long Yuan Construction and Tengda Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tengda Construction and Long Yuan 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 Long Yuan Construction are associated (or correlated) with Tengda Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tengda Construction has no effect on the direction of Long Yuan i.e., Long Yuan and Tengda Construction go up and down completely randomly.

Pair Corralation between Long Yuan and Tengda Construction

Assuming the 90 days trading horizon Long Yuan Construction is expected to generate 1.53 times more return on investment than Tengda Construction. However, Long Yuan is 1.53 times more volatile than Tengda Construction Group. It trades about 0.26 of its potential returns per unit of risk. Tengda Construction Group is currently generating about 0.24 per unit of risk. If you would invest  246.00  in Long Yuan Construction on September 16, 2024 and sell it today you would earn a total of  177.00  from holding Long Yuan Construction or generate 71.95% return on investment over 90 days.

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

Long Yuan Construction  vs.  Tengda Construction Group

Long Yuan Construction

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Long Yuan Construction are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Long Yuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Tengda Construction

Risk-Adjusted Performance

19 of 100

Solid

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

Pair Trading with Long Yuan and Tengda Construction

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

The idea behind Long Yuan Construction and Tengda Construction Group 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..