Correlation Between Tengda Construction and Shenzhen Kexin

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

Diversification Opportunities for Tengda Construction and Shenzhen Kexin

0.2

Correlation Coefficient

Tengda Construction  Shenzhen Kexin

Modest diversification

The 3 months correlation between Tengda and Shenzhen is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Tengda Construction Group and Shenzhen Kexin Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Kexin Commu 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 Shenzhen Kexin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Kexin Commu has no effect on the direction of Tengda Construction i.e., Tengda Construction and Shenzhen Kexin go up and down completely randomly.

Pair Corralation between Tengda Construction and Shenzhen Kexin

Assuming the 90 days trading horizon Tengda Construction is expected to generate 2.36 times less return on investment than Shenzhen Kexin. But when comparing it to its historical volatility, Tengda Construction Group is 1.84 times less risky than Shenzhen Kexin. It trades about 0.02 of its potential returns per unit of risk. Shenzhen Kexin Communication is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,096  in Shenzhen Kexin Communication on October 9, 2024 and sell it today you would earn a total of  101.00  from holding Shenzhen Kexin Communication or generate 9.22% return on investment over 90 days.

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

Tengda Construction Group  vs.  Shenzhen Kexin Communication

Tengda Construction

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tengda Construction Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Shenzhen Kexin Commu

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Tengda Construction and Shenzhen Kexin

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

The idea behind Tengda Construction Group and Shenzhen Kexin Communication 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.