Correlation Between Shaanxi Construction and Guangdong Liantai

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

Diversification Opportunities for Shaanxi Construction and Guangdong Liantai

0.77

Correlation Coefficient

Shaanxi Construction  Guangdong Liantai

Poor diversification

The 3 months correlation between Shaanxi and Guangdong is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Shaanxi Construction Machinery and Guangdong Liantai Environmenta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Liantai 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 Guangdong Liantai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Liantai has no effect on the direction of Shaanxi Construction i.e., Shaanxi Construction and Guangdong Liantai go up and down completely randomly.

Pair Corralation between Shaanxi Construction and Guangdong Liantai

Assuming the 90 days trading horizon Shaanxi Construction Machinery is expected to generate 2.29 times more return on investment than Guangdong Liantai. However, Shaanxi Construction is 2.29 times more volatile than Guangdong Liantai Environmental. It trades about 0.06 of its potential returns per unit of risk. Guangdong Liantai Environmental is currently generating about 0.04 per unit of risk. If you would invest  341.00  in Shaanxi Construction Machinery on December 26, 2024 and sell it today you would earn a total of  26.00  from holding Shaanxi Construction Machinery or generate 7.62% 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.  Guangdong Liantai Environmenta

Shaanxi Construction

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Construction Machinery are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shaanxi Construction may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Guangdong Liantai

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Liantai Environmental are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangdong Liantai 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 Guangdong Liantai

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

The idea behind Shaanxi Construction Machinery and Guangdong Liantai Environmental 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.