Correlation Between Shaanxi Construction and Xiandai Investment

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

Diversification Opportunities for Shaanxi Construction and Xiandai Investment

0.51

Correlation Coefficient

Shaanxi Construction  Xiandai Investment

Very weak diversification

The 3 months correlation between Shaanxi and Xiandai is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Shaanxi Construction Machinery and Xiandai Investment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiandai Investment 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 Xiandai Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiandai Investment has no effect on the direction of Shaanxi Construction i.e., Shaanxi Construction and Xiandai Investment go up and down completely randomly.

Pair Corralation between Shaanxi Construction and Xiandai Investment

Assuming the 90 days trading horizon Shaanxi Construction Machinery is expected to under-perform the Xiandai Investment. In addition to that, Shaanxi Construction is 1.48 times more volatile than Xiandai Investment Co. It trades about -0.14 of its total potential returns per unit of risk. Xiandai Investment Co is currently generating about 0.0 per unit of volatility. If you would invest  428.00  in Xiandai Investment Co on October 10, 2024 and sell it today you would lose (5.00) from holding Xiandai Investment Co or give up 1.17% of portfolio value over 90 days.

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

Shaanxi Construction Machinery  vs.  Xiandai Investment 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.

Xiandai Investment

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xiandai Investment Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Xiandai Investment 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 Xiandai Investment

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

The idea behind Shaanxi Construction Machinery and Xiandai Investment 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.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.