Correlation Between Suzhou Xingye and Zhejiang Construction

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

By analyzing existing cross correlation between Suzhou Xingye Material and Zhejiang Construction Investment, you can compare the effects of market volatilities on Suzhou Xingye and Zhejiang 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 Suzhou Xingye with a short position of Zhejiang Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Suzhou Xingye and Zhejiang Construction.

Diversification Opportunities for Suzhou Xingye and Zhejiang Construction

0.76

Correlation Coefficient

Suzhou Xingye  Zhejiang Construction

Poor diversification

The 3 months correlation between Suzhou and Zhejiang is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Suzhou Xingye Material and Zhejiang Construction Investme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Construction and Suzhou Xingye 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 Suzhou Xingye Material are associated (or correlated) with Zhejiang Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Construction has no effect on the direction of Suzhou Xingye i.e., Suzhou Xingye and Zhejiang Construction go up and down completely randomly.

Pair Corralation between Suzhou Xingye and Zhejiang Construction

Assuming the 90 days trading horizon Suzhou Xingye is expected to generate 1.44 times less return on investment than Zhejiang Construction. But when comparing it to its historical volatility, Suzhou Xingye Material is 1.35 times less risky than Zhejiang Construction. It trades about 0.04 of its potential returns per unit of risk. Zhejiang Construction Investment is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  811.00  in Zhejiang Construction Investment on September 29, 2024 and sell it today you would earn a total of  109.00  from holding Zhejiang Construction Investment or generate 13.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.19%
Values	Daily Returns

Suzhou Xingye Material  vs.  Zhejiang Construction Investme

Suzhou Xingye Material

Risk-Adjusted Performance

3 of 100

Insignificant

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

Zhejiang Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhejiang Construction Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Zhejiang 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 Suzhou Xingye and Zhejiang Construction

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

The idea behind Suzhou Xingye Material and Zhejiang Construction Investment 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.