Correlation Between Power Construction and Shanghai Zhangjiang

Can any of the company-specific risk be diversified away by investing in both Power Construction and Shanghai Zhangjiang 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 Power Construction and Shanghai Zhangjiang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Power Construction Corp and Shanghai Zhangjiang Hi Tech, you can compare the effects of market volatilities on Power Construction and Shanghai Zhangjiang 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 Power Construction with a short position of Shanghai Zhangjiang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Power Construction and Shanghai Zhangjiang.

Diversification Opportunities for Power Construction and Shanghai Zhangjiang

0.39

Correlation Coefficient

Power Construction  Shanghai Zhangjiang

Weak diversification

The 3 months correlation between Power and Shanghai is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Power Construction Corp and Shanghai Zhangjiang Hi Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Zhangjiang and Power 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 Power Construction Corp are associated (or correlated) with Shanghai Zhangjiang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Zhangjiang has no effect on the direction of Power Construction i.e., Power Construction and Shanghai Zhangjiang go up and down completely randomly.

Pair Corralation between Power Construction and Shanghai Zhangjiang

Assuming the 90 days trading horizon Power Construction Corp is expected to under-perform the Shanghai Zhangjiang. But the stock apears to be less risky and, when comparing its historical volatility, Power Construction Corp is 1.95 times less risky than Shanghai Zhangjiang. The stock trades about -0.19 of its potential returns per unit of risk. The Shanghai Zhangjiang Hi Tech is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  2,776  in Shanghai Zhangjiang Hi Tech on December 30, 2024 and sell it today you would lose (270.00) from holding Shanghai Zhangjiang Hi Tech or give up 9.73% of portfolio value over 90 days.

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

Power Construction Corp  vs.  Shanghai Zhangjiang Hi Tech

Power Construction Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Power Construction Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shanghai Zhangjiang

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Zhangjiang Hi Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Power Construction and Shanghai Zhangjiang

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

The idea behind Power Construction Corp and Shanghai Zhangjiang Hi Tech 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.