Correlation Between Shaanxi Construction and Suzhou Douson

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

Diversification Opportunities for Shaanxi Construction and Suzhou Douson

0.84

Correlation Coefficient

Shaanxi Construction  Suzhou Douson

Very poor diversification

The 3 months correlation between Shaanxi and Suzhou is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Shaanxi Construction Machinery and Suzhou Douson Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzhou Douson Drilling 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 Suzhou Douson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzhou Douson Drilling has no effect on the direction of Shaanxi Construction i.e., Shaanxi Construction and Suzhou Douson go up and down completely randomly.

Pair Corralation between Shaanxi Construction and Suzhou Douson

Assuming the 90 days trading horizon Shaanxi Construction Machinery is expected to generate 1.11 times more return on investment than Suzhou Douson. However, Shaanxi Construction is 1.11 times more volatile than Suzhou Douson Drilling. It trades about 0.1 of its potential returns per unit of risk. Suzhou Douson Drilling is currently generating about 0.08 per unit of risk. If you would invest  287.00  in Shaanxi Construction Machinery on September 30, 2024 and sell it today you would earn a total of  63.00  from holding Shaanxi Construction Machinery or generate 21.95% return on investment over 90 days.

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

Shaanxi Construction Machinery  vs.  Suzhou Douson Drilling

Shaanxi Construction

Risk-Adjusted Performance

7 of 100

OK

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.

Suzhou Douson Drilling

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Suzhou Douson Drilling are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Suzhou Douson sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shaanxi Construction and Suzhou Douson

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

The idea behind Shaanxi Construction Machinery and Suzhou Douson Drilling 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.