Correlation Between Shanghai Action and Shantui Construction

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

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

Diversification Opportunities for Shanghai Action and Shantui Construction

0.29

Correlation Coefficient

Shanghai Action  Shantui Construction

Modest diversification

The 3 months correlation between Shanghai and Shantui is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Action Education and Shantui Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shantui Construction and Shanghai Action 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 Action Education are associated (or correlated) with Shantui Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shantui Construction has no effect on the direction of Shanghai Action i.e., Shanghai Action and Shantui Construction go up and down completely randomly.

Pair Corralation between Shanghai Action and Shantui Construction

Assuming the 90 days trading horizon Shanghai Action Education is expected to generate 0.73 times more return on investment than Shantui Construction. However, Shanghai Action Education is 1.37 times less risky than Shantui Construction. It trades about 0.2 of its potential returns per unit of risk. Shantui Construction Machinery is currently generating about 0.01 per unit of risk. If you would invest  3,426  in Shanghai Action Education on December 27, 2024 and sell it today you would earn a total of  851.00  from holding Shanghai Action Education or generate 24.84% return on investment over 90 days.

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

Shanghai Action Education  vs.  Shantui Construction Machinery

Shanghai Action Education

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Action Education are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Action sustained solid returns over the last few months and may actually be approaching a breakup point.

Shantui Construction

Risk-Adjusted Performance

Weak

Over the last 90 days Shantui Construction Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shantui 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 Shanghai Action and Shantui Construction

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

The idea behind Shanghai Action Education and Shantui 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.