Correlation Between Xiamen Goldenhome and Shaanxi Construction

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

Diversification Opportunities for Xiamen Goldenhome and Shaanxi Construction

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between Xiamen and Shaanxi is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Xiamen Goldenhome Co and Shaanxi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Construction and Xiamen Goldenhome 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 Xiamen Goldenhome Co are associated (or correlated) with Shaanxi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaanxi Construction has no effect on the direction of Xiamen Goldenhome i.e., Xiamen Goldenhome and Shaanxi Construction go up and down completely randomly.

Pair Corralation between Xiamen Goldenhome and Shaanxi Construction

Assuming the 90 days trading horizon Xiamen Goldenhome Co is expected to generate 0.64 times more return on investment than Shaanxi Construction. However, Xiamen Goldenhome Co is 1.56 times less risky than Shaanxi Construction. It trades about 0.03 of its potential returns per unit of risk. Shaanxi Construction Machinery is currently generating about 0.01 per unit of risk. If you would invest  1,921  in Xiamen Goldenhome Co on October 25, 2024 and sell it today you would earn a total of  63.00  from holding Xiamen Goldenhome Co or generate 3.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Xiamen Goldenhome Co  vs.  Shaanxi Construction Machinery

 Performance 
       Timeline  
Xiamen Goldenhome 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen Goldenhome Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Xiamen Goldenhome is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Shaanxi Construction 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Shaanxi Construction Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shaanxi Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Xiamen Goldenhome and Shaanxi Construction Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Xiamen Goldenhome and Shaanxi Construction

The main advantage of trading using opposite Xiamen Goldenhome and Shaanxi Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xiamen Goldenhome position performs unexpectedly, Shaanxi 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 Shaanxi Construction will offset losses from the drop in Shaanxi Construction's long position.
The idea behind Xiamen Goldenhome Co and Shaanxi 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.
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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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