Correlation Between Shaanxi Construction and Hubei Dinglong

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

Diversification Opportunities for Shaanxi Construction and Hubei Dinglong

0.64

Correlation Coefficient

Shaanxi Construction  Hubei Dinglong

Poor diversification

The 3 months correlation between Shaanxi and Hubei is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Shaanxi Construction Machinery and Hubei Dinglong Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Dinglong Chemical 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 Hubei Dinglong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Dinglong Chemical has no effect on the direction of Shaanxi Construction i.e., Shaanxi Construction and Hubei Dinglong go up and down completely randomly.

Pair Corralation between Shaanxi Construction and Hubei Dinglong

Assuming the 90 days trading horizon Shaanxi Construction Machinery is expected to generate 1.18 times more return on investment than Hubei Dinglong. However, Shaanxi Construction is 1.18 times more volatile than Hubei Dinglong Chemical. It trades about 0.1 of its potential returns per unit of risk. Hubei Dinglong Chemical is currently generating about 0.06 per unit of risk. If you would invest  243.00  in Shaanxi Construction Machinery on September 29, 2024 and sell it today you would earn a total of  107.00  from holding Shaanxi Construction Machinery or generate 44.03% return on investment over 90 days.

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

Shaanxi Construction Machinery  vs.  Hubei Dinglong Chemical

Shaanxi Construction

Risk-Adjusted Performance

7 of 100

Modest

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

Hubei Dinglong Chemical

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Dinglong Chemical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Dinglong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shaanxi Construction and Hubei Dinglong

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

The idea behind Shaanxi Construction Machinery and Hubei Dinglong Chemical 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.