Correlation Between Shaanxi Construction and Masterwork Machinery

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

Diversification Opportunities for Shaanxi Construction and Masterwork Machinery

0.57

Correlation Coefficient

Shaanxi Construction  Masterwork Machinery

Very weak diversification

The 3 months correlation between Shaanxi and Masterwork is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Shaanxi Construction Machinery and Masterwork Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masterwork Machinery 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 Masterwork Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masterwork Machinery has no effect on the direction of Shaanxi Construction i.e., Shaanxi Construction and Masterwork Machinery go up and down completely randomly.

Pair Corralation between Shaanxi Construction and Masterwork Machinery

Assuming the 90 days trading horizon Shaanxi Construction Machinery is expected to generate 1.13 times more return on investment than Masterwork Machinery. However, Shaanxi Construction is 1.13 times more volatile than Masterwork Machinery. It trades about 0.03 of its potential returns per unit of risk. Masterwork Machinery is currently generating about -0.09 per unit of risk. If you would invest  347.00  in Shaanxi Construction Machinery on October 22, 2024 and sell it today you would earn a total of  3.00  from holding Shaanxi Construction Machinery or generate 0.86% return on investment over 90 days.

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

Shaanxi Construction Machinery  vs.  Masterwork Machinery

Shaanxi Construction

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Construction Machinery are ranked lower than 8 (%) 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.

Masterwork Machinery

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Masterwork Machinery are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Masterwork Machinery may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shaanxi Construction and Masterwork Machinery

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

The idea behind Shaanxi Construction Machinery and Masterwork 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .