Correlation Between Tengda Construction and Dongguan Aohai

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

Diversification Opportunities for Tengda Construction and Dongguan Aohai

0.09

Correlation Coefficient

Tengda Construction  Dongguan Aohai

Significant diversification

The 3 months correlation between Tengda and Dongguan is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Tengda Construction Group and Dongguan Aohai Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongguan Aohai Technology 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 Dongguan Aohai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongguan Aohai Technology has no effect on the direction of Tengda Construction i.e., Tengda Construction and Dongguan Aohai go up and down completely randomly.

Pair Corralation between Tengda Construction and Dongguan Aohai

Assuming the 90 days trading horizon Tengda Construction Group is expected to under-perform the Dongguan Aohai. But the stock apears to be less risky and, when comparing its historical volatility, Tengda Construction Group is 1.93 times less risky than Dongguan Aohai. The stock trades about -0.21 of its potential returns per unit of risk. The Dongguan Aohai Technology is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,976  in Dongguan Aohai Technology on October 24, 2024 and sell it today you would earn a total of  34.00  from holding Dongguan Aohai Technology or generate 0.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Tengda Construction Group  vs.  Dongguan Aohai Technology

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.

Dongguan Aohai Technology

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongguan Aohai Technology are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongguan Aohai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tengda Construction and Dongguan Aohai

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

The idea behind Tengda Construction Group and Dongguan Aohai Technology 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.