Correlation Between Shaanxi Construction and Shengda Mining

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

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

Diversification Opportunities for Shaanxi Construction and Shengda Mining

0.33

Correlation Coefficient

Shaanxi Construction  Shengda Mining

Weak diversification

The 3 months correlation between Shaanxi and Shengda is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Shaanxi Construction Machinery and Shengda Mining Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shengda Mining and Shaanxi 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 Shaanxi Construction Machinery are associated (or correlated) with Shengda Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shengda Mining has no effect on the direction of Shaanxi Construction i.e., Shaanxi Construction and Shengda Mining go up and down completely randomly.

Pair Corralation between Shaanxi Construction and Shengda Mining

Assuming the 90 days trading horizon Shaanxi Construction Machinery is expected to under-perform the Shengda Mining. In addition to that, Shaanxi Construction is 2.63 times more volatile than Shengda Mining Co. It trades about -0.11 of its total potential returns per unit of risk. Shengda Mining Co is currently generating about -0.16 per unit of volatility. If you would invest  1,301  in Shengda Mining Co on October 10, 2024 and sell it today you would lose (70.00) from holding Shengda Mining Co or give up 5.38% of portfolio value over 90 days.

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

Shaanxi Construction Machinery  vs.  Shengda Mining Co

Shaanxi Construction

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Construction Machinery are ranked lower than 6 (%) 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.

Shengda Mining

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shaanxi Construction and Shengda Mining

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

The idea behind Shaanxi Construction Machinery and Shengda Mining Co 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.