Correlation Between Liaoning Chengda and Shantui Construction

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

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

Diversification Opportunities for Liaoning Chengda and Shantui Construction

0.13

Correlation Coefficient

Liaoning Chengda  Shantui Construction

Average diversification

The 3 months correlation between Liaoning and Shantui is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Chengda Biotechnology and Shantui Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shantui Construction and Liaoning Chengda 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 Liaoning Chengda Biotechnology 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 Liaoning Chengda i.e., Liaoning Chengda and Shantui Construction go up and down completely randomly.

Pair Corralation between Liaoning Chengda and Shantui Construction

Assuming the 90 days trading horizon Liaoning Chengda Biotechnology is expected to under-perform the Shantui Construction. But the stock apears to be less risky and, when comparing its historical volatility, Liaoning Chengda Biotechnology is 1.69 times less risky than Shantui Construction. The stock trades about -0.51 of its potential returns per unit of risk. The Shantui Construction Machinery is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,010  in Shantui Construction Machinery on October 8, 2024 and sell it today you would lose (25.00) from holding Shantui Construction Machinery or give up 2.48% of portfolio value over 90 days.

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

Liaoning Chengda Biotechnology  vs.  Shantui Construction Machinery

Liaoning Chengda Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liaoning Chengda Biotechnology 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shantui Construction

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shantui Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liaoning Chengda and Shantui Construction

The main advantage of trading using opposite Liaoning Chengda and Shantui Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Liaoning Chengda 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 Liaoning Chengda Biotechnology 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.