Correlation Between China Enterprise and Shantui Construction

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

By analyzing existing cross correlation between China Enterprise Co and Shantui Construction Machinery, you can compare the effects of market volatilities on China Enterprise and Shantui 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 China Enterprise with a short position of Shantui Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Enterprise and Shantui Construction.

Diversification Opportunities for China Enterprise and Shantui Construction

0.12

Correlation Coefficient

China Enterprise  Shantui Construction

Average diversification

The 3 months correlation between China and Shantui is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding China Enterprise Co and Shantui Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shantui Construction and China Enterprise 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 China Enterprise Co are associated (or correlated) with Shantui Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shantui Construction has no effect on the direction of China Enterprise i.e., China Enterprise and Shantui Construction go up and down completely randomly.

Pair Corralation between China Enterprise and Shantui Construction

Assuming the 90 days trading horizon China Enterprise Co is expected to under-perform the Shantui Construction. But the stock apears to be less risky and, when comparing its historical volatility, China Enterprise Co is 1.05 times less risky than Shantui Construction. The stock trades about -0.05 of its potential returns per unit of risk. The Shantui Construction Machinery is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  759.00  in Shantui Construction Machinery on October 15, 2024 and sell it today you would earn a total of  209.00  from holding Shantui Construction Machinery or generate 27.54% return on investment over 90 days.

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

China Enterprise Co  vs.  Shantui Construction Machinery

China Enterprise

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Enterprise Co 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.

Shantui Construction

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shantui Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Enterprise and Shantui Construction

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

The idea behind China Enterprise Co and Shantui Construction Machinery 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.