Correlation Between Shaanxi Construction and Western Metal

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

Diversification Opportunities for Shaanxi Construction and Western Metal

-0.03

Correlation Coefficient

Shaanxi Construction  Western Metal

Good diversification

The 3 months correlation between Shaanxi and Western is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Shaanxi Construction Machinery and Western Metal Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Metal Materials 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 Western Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Metal Materials has no effect on the direction of Shaanxi Construction i.e., Shaanxi Construction and Western Metal go up and down completely randomly.

Pair Corralation between Shaanxi Construction and Western Metal

Assuming the 90 days trading horizon Shaanxi Construction is expected to generate 1.06 times less return on investment than Western Metal. In addition to that, Shaanxi Construction is 1.37 times more volatile than Western Metal Materials. It trades about 0.02 of its total potential returns per unit of risk. Western Metal Materials is currently generating about 0.03 per unit of volatility. If you would invest  1,539  in Western Metal Materials on October 25, 2024 and sell it today you would earn a total of  194.00  from holding Western Metal Materials or generate 12.61% return on investment over 90 days.

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

Shaanxi Construction Machinery  vs.  Western Metal Materials

Shaanxi Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

Western Metal Materials

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Metal may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shaanxi Construction and Western Metal

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

The idea behind Shaanxi Construction Machinery and Western Metal Materials 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.