Correlation Between Dr Peng and Shantui Construction

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

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

Diversification Opportunities for Dr Peng and Shantui Construction

0.79

Correlation Coefficient

Dr Peng  Shantui Construction

Poor diversification

The 3 months correlation between 600804 and Shantui is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Dr Peng Telecom and Shantui Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shantui Construction and Dr Peng 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 Dr Peng Telecom 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 Dr Peng i.e., Dr Peng and Shantui Construction go up and down completely randomly.

Pair Corralation between Dr Peng and Shantui Construction

Assuming the 90 days trading horizon Dr Peng Telecom is expected to generate 2.38 times more return on investment than Shantui Construction. However, Dr Peng is 2.38 times more volatile than Shantui Construction Machinery. It trades about -0.02 of its potential returns per unit of risk. Shantui Construction Machinery is currently generating about -0.32 per unit of risk. If you would invest  185.00  in Dr Peng Telecom on September 28, 2024 and sell it today you would lose (7.00) from holding Dr Peng Telecom or give up 3.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Dr Peng Telecom  vs.  Shantui Construction Machinery

Dr Peng Telecom

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dr Peng Telecom are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dr Peng sustained solid returns over the last few months and may actually be approaching a breakup point.

Shantui Construction

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 7 (%) 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 Dr Peng and Shantui Construction

The main advantage of trading using opposite Dr Peng and Shantui Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dr Peng 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 Dr Peng Telecom 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.