Correlation Between Shanghai Shuixing and Shanghai Construction

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

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

Diversification Opportunities for Shanghai Shuixing and Shanghai Construction

0.77

Correlation Coefficient

Shanghai Shuixing  Shanghai Construction

Poor diversification

The 3 months correlation between Shanghai and Shanghai is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Shuixing Home and Shanghai Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Construction and Shanghai Shuixing 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 Shanghai Shuixing Home are associated (or correlated) with Shanghai Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Construction has no effect on the direction of Shanghai Shuixing i.e., Shanghai Shuixing and Shanghai Construction go up and down completely randomly.

Pair Corralation between Shanghai Shuixing and Shanghai Construction

Assuming the 90 days trading horizon Shanghai Shuixing is expected to generate 2.2 times less return on investment than Shanghai Construction. In addition to that, Shanghai Shuixing is 1.21 times more volatile than Shanghai Construction Group. It trades about 0.03 of its total potential returns per unit of risk. Shanghai Construction Group is currently generating about 0.09 per unit of volatility. If you would invest  209.00  in Shanghai Construction Group on October 4, 2024 and sell it today you would earn a total of  56.00  from holding Shanghai Construction Group or generate 26.79% return on investment over 90 days.

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

Shanghai Shuixing Home  vs.  Shanghai Construction Group

Shanghai Shuixing Home

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Shuixing Home are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Shuixing sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Construction

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Construction Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Construction may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shanghai Shuixing and Shanghai Construction

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

The idea behind Shanghai Shuixing Home and Shanghai Construction Group 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.