Correlation Between Mengtian Home and Suzhou Douson

Can any of the company-specific risk be diversified away by investing in both Mengtian Home 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 Mengtian Home and Suzhou Douson into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mengtian Home Group and Suzhou Douson Drilling, you can compare the effects of market volatilities on Mengtian Home 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 Mengtian Home with a short position of Suzhou Douson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mengtian Home and Suzhou Douson.

Diversification Opportunities for Mengtian Home and Suzhou Douson

0.64

Correlation Coefficient

Mengtian Home  Suzhou Douson

Poor diversification

The 3 months correlation between Mengtian and Suzhou is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Mengtian Home Group 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 Mengtian Home 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 Mengtian Home Group 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 Mengtian Home i.e., Mengtian Home and Suzhou Douson go up and down completely randomly.

Pair Corralation between Mengtian Home and Suzhou Douson

Assuming the 90 days trading horizon Mengtian Home Group is expected to under-perform the Suzhou Douson. But the stock apears to be less risky and, when comparing its historical volatility, Mengtian Home Group is 1.16 times less risky than Suzhou Douson. The stock trades about 0.0 of its potential returns per unit of risk. The Suzhou Douson Drilling is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,849  in Suzhou Douson Drilling on September 30, 2024 and sell it today you would lose (343.00) from holding Suzhou Douson Drilling or give up 12.04% of portfolio value over 90 days.

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

Mengtian Home Group  vs.  Suzhou Douson Drilling

Mengtian Home Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mengtian Home Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mengtian Home may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Mengtian Home and Suzhou Douson

The main advantage of trading using opposite Mengtian Home and Suzhou Douson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mengtian Home 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 Mengtian Home Group 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.