Correlation Between Mengtian Home and Road Environment

Can any of the company-specific risk be diversified away by investing in both Mengtian Home and Road Environment 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 Road Environment 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 Road Environment Technology, you can compare the effects of market volatilities on Mengtian Home and Road Environment 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 Road Environment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mengtian Home and Road Environment.

Diversification Opportunities for Mengtian Home and Road Environment

0.51

Correlation Coefficient

Mengtian Home  Road Environment

Very weak diversification

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

Pair Corralation between Mengtian Home and Road Environment

Assuming the 90 days trading horizon Mengtian Home Group is expected to under-perform the Road Environment. But the stock apears to be less risky and, when comparing its historical volatility, Mengtian Home Group is 1.24 times less risky than Road Environment. The stock trades about -0.04 of its potential returns per unit of risk. The Road Environment Technology is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,374  in Road Environment Technology on October 23, 2024 and sell it today you would lose (33.00) from holding Road Environment Technology or give up 2.4% of portfolio value over 90 days.

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

Mengtian Home Group  vs.  Road Environment Technology

Mengtian Home Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mengtian Home Group are ranked lower than 3 (%) 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 February 2025.

Road Environment Tec

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Mengtian Home and Road Environment

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

The idea behind Mengtian Home Group and Road Environment Technology 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..