Correlation Between Industrial and Shantui Construction

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Can any of the company-specific risk be diversified away by investing in both Industrial and Shantui Construction 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 Industrial and Shantui Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Industrial and Commercial and Shantui Construction Machinery, you can compare the effects of market volatilities on Industrial and Shantui Construction 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 Industrial with a short position of Shantui Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial and Shantui Construction.

Diversification Opportunities for Industrial and Shantui Construction

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Industrial and Shantui is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Shantui Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shantui Construction and Industrial 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 Industrial and Commercial are associated (or correlated) with Shantui Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shantui Construction has no effect on the direction of Industrial i.e., Industrial and Shantui Construction go up and down completely randomly.

Pair Corralation between Industrial and Shantui Construction

Assuming the 90 days trading horizon Industrial is expected to generate 3.64 times less return on investment than Shantui Construction. But when comparing it to its historical volatility, Industrial and Commercial is 3.17 times less risky than Shantui Construction. It trades about 0.15 of its potential returns per unit of risk. Shantui Construction Machinery is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  768.00  in Shantui Construction Machinery on September 23, 2024 and sell it today you would earn a total of  180.00  from holding Shantui Construction Machinery or generate 23.44% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Industrial and Commercial  vs.  Shantui Construction Machinery

 Performance 
       Timeline  
Industrial and Commercial 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.
Shantui Construction 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shantui Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Industrial and Shantui Construction Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Industrial and Shantui Construction

The main advantage of trading using opposite Industrial and Shantui Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial position performs unexpectedly, Shantui Construction 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 Shantui Construction will offset losses from the drop in Shantui Construction's long position.
The idea behind Industrial and Commercial and Shantui Construction 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.
Check out your portfolio center.
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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