Correlation Between Tengda Construction and Sinocat Environmental

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

Diversification Opportunities for Tengda Construction and Sinocat Environmental

0.86

Correlation Coefficient

Tengda Construction  Sinocat Environmental

Very poor diversification

The 3 months correlation between Tengda and Sinocat is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Tengda Construction Group and Sinocat Environmental Technolo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinocat Environmental 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 Sinocat Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinocat Environmental has no effect on the direction of Tengda Construction i.e., Tengda Construction and Sinocat Environmental go up and down completely randomly.

Pair Corralation between Tengda Construction and Sinocat Environmental

Assuming the 90 days trading horizon Tengda Construction Group is expected to generate 0.55 times more return on investment than Sinocat Environmental. However, Tengda Construction Group is 1.83 times less risky than Sinocat Environmental. It trades about -0.01 of its potential returns per unit of risk. Sinocat Environmental Technology is currently generating about -0.02 per unit of risk. If you would invest  267.00  in Tengda Construction Group on October 15, 2024 and sell it today you would lose (49.00) from holding Tengda Construction Group or give up 18.35% of portfolio value over 90 days.

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

Tengda Construction Group  vs.  Sinocat Environmental Technolo

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.

Sinocat Environmental

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sinocat Environmental Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinocat Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tengda Construction and Sinocat Environmental

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

The idea behind Tengda Construction Group and Sinocat Environmental 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.