Correlation Between Shanghai CEO and Shaanxi Construction

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

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

Diversification Opportunities for Shanghai CEO and Shaanxi Construction

0.46

Correlation Coefficient

Shanghai CEO  Shaanxi Construction

Very weak diversification

The 3 months correlation between Shanghai and Shaanxi is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai CEO Environmental and Shaanxi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Construction and Shanghai CEO 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 CEO Environmental 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 Shanghai CEO i.e., Shanghai CEO and Shaanxi Construction go up and down completely randomly.

Pair Corralation between Shanghai CEO and Shaanxi Construction

Assuming the 90 days trading horizon Shanghai CEO Environmental is expected to under-perform the Shaanxi Construction. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai CEO Environmental is 1.6 times less risky than Shaanxi Construction. The stock trades about -0.41 of its potential returns per unit of risk. The Shaanxi Construction Machinery is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  376.00  in Shaanxi Construction Machinery on October 12, 2024 and sell it today you would lose (61.00) from holding Shaanxi Construction Machinery or give up 16.22% of portfolio value over 90 days.

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

Shanghai CEO Environmental  vs.  Shaanxi Construction Machinery

Shanghai CEO Environ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai CEO Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shaanxi Construction

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Construction Machinery are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shaanxi Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai CEO and Shaanxi Construction

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

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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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.