Correlation Between Chengtun Mining and Shaanxi Construction

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

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

Diversification Opportunities for Chengtun Mining and Shaanxi Construction

0.96

Correlation Coefficient

Chengtun Mining  Shaanxi Construction

Almost no diversification

The 3 months correlation between Chengtun and Shaanxi is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Chengtun Mining Group and Shaanxi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Construction and Chengtun Mining 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 Chengtun Mining Group are associated (or correlated) with Shaanxi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaanxi Construction has no effect on the direction of Chengtun Mining i.e., Chengtun Mining and Shaanxi Construction go up and down completely randomly.

Pair Corralation between Chengtun Mining and Shaanxi Construction

Assuming the 90 days trading horizon Chengtun Mining Group is expected to under-perform the Shaanxi Construction. But the stock apears to be less risky and, when comparing its historical volatility, Chengtun Mining Group is 1.6 times less risky than Shaanxi Construction. The stock trades about -0.04 of its potential returns per unit of risk. The Shaanxi Construction Machinery is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  385.00  in Shaanxi Construction Machinery on September 13, 2024 and sell it today you would lose (9.00) from holding Shaanxi Construction Machinery or give up 2.34% of portfolio value over 90 days.

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

Chengtun Mining Group  vs.  Shaanxi Construction Machinery

Chengtun Mining Group

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chengtun Mining Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengtun Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Shaanxi Construction

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Construction Machinery are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shaanxi Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chengtun Mining and Shaanxi Construction

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

The idea behind Chengtun Mining Group and Shaanxi 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.