Correlation Between Tengda Construction and Nanjing Red

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

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

Diversification Opportunities for Tengda Construction and Nanjing Red

0.65

Correlation Coefficient

Tengda Construction  Nanjing Red

Poor diversification

The 3 months correlation between Tengda and Nanjing is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Tengda Construction Group and Nanjing Red Sun in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanjing Red Sun and Tengda 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 Tengda Construction Group are associated (or correlated) with Nanjing Red. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanjing Red Sun has no effect on the direction of Tengda Construction i.e., Tengda Construction and Nanjing Red go up and down completely randomly.

Pair Corralation between Tengda Construction and Nanjing Red

Assuming the 90 days trading horizon Tengda Construction Group is expected to generate 0.49 times more return on investment than Nanjing Red. However, Tengda Construction Group is 2.04 times less risky than Nanjing Red. It trades about -0.03 of its potential returns per unit of risk. Nanjing Red Sun is currently generating about -0.03 per unit of risk. If you would invest  240.00  in Tengda Construction Group on October 26, 2024 and sell it today you would lose (14.00) from holding Tengda Construction Group or give up 5.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Tengda Construction Group  vs.  Nanjing Red Sun

Tengda Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

Nanjing Red Sun

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nanjing Red Sun 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.

Pair Trading with Tengda Construction and Nanjing Red

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

The idea behind Tengda Construction Group and Nanjing Red Sun 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.