Correlation Between Zhongtong Guomai and Shaanxi Construction

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

By analyzing existing cross correlation between Zhongtong Guomai Communication and Shaanxi Construction Machinery, you can compare the effects of market volatilities on Zhongtong Guomai 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 Zhongtong Guomai with a short position of Shaanxi Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongtong Guomai and Shaanxi Construction.

Diversification Opportunities for Zhongtong Guomai and Shaanxi Construction

0.51

Correlation Coefficient

Zhongtong Guomai  Shaanxi Construction

Very weak diversification

The 3 months correlation between Zhongtong and Shaanxi is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Zhongtong Guomai Communication and Shaanxi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Construction and Zhongtong Guomai 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 Zhongtong Guomai Communication 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 Zhongtong Guomai i.e., Zhongtong Guomai and Shaanxi Construction go up and down completely randomly.

Pair Corralation between Zhongtong Guomai and Shaanxi Construction

Assuming the 90 days trading horizon Zhongtong Guomai Communication is expected to under-perform the Shaanxi Construction. In addition to that, Zhongtong Guomai is 1.35 times more volatile than Shaanxi Construction Machinery. It trades about -0.07 of its total potential returns per unit of risk. Shaanxi Construction Machinery is currently generating about 0.03 per unit of volatility. If you would invest  349.00  in Shaanxi Construction Machinery on December 2, 2024 and sell it today you would earn a total of  7.00  from holding Shaanxi Construction Machinery or generate 2.01% return on investment over 90 days.

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

Zhongtong Guomai Communication  vs.  Shaanxi Construction Machinery

Zhongtong Guomai Com

Risk-Adjusted Performance

Very Weak

Over the last 90 days Zhongtong Guomai Communication 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.

Shaanxi Construction

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Construction Machinery are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Zhongtong Guomai and Shaanxi Construction

The main advantage of trading using opposite Zhongtong Guomai and Shaanxi Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zhongtong Guomai 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 Zhongtong Guomai Communication 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.

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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.