Correlation Between Arcosa and Zhejiang Expressway

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

By analyzing existing cross correlation between Arcosa Inc and Zhejiang Expressway Co, you can compare the effects of market volatilities on Arcosa and Zhejiang Expressway 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 Arcosa with a short position of Zhejiang Expressway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arcosa and Zhejiang Expressway.

Diversification Opportunities for Arcosa and Zhejiang Expressway

-0.2

Correlation Coefficient

Arcosa  Zhejiang Expressway

Good diversification

The 3 months correlation between Arcosa and Zhejiang is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Arcosa Inc and Zhejiang Expressway Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Expressway and Arcosa 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 Arcosa Inc are associated (or correlated) with Zhejiang Expressway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Expressway has no effect on the direction of Arcosa i.e., Arcosa and Zhejiang Expressway go up and down completely randomly.

Pair Corralation between Arcosa and Zhejiang Expressway

Assuming the 90 days horizon Arcosa is expected to generate 3.46 times less return on investment than Zhejiang Expressway. But when comparing it to its historical volatility, Arcosa Inc is 3.87 times less risky than Zhejiang Expressway. It trades about 0.07 of its potential returns per unit of risk. Zhejiang Expressway Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  15.00  in Zhejiang Expressway Co on October 12, 2024 and sell it today you would earn a total of  49.00  from holding Zhejiang Expressway Co or generate 326.67% return on investment over 90 days.

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

Arcosa Inc  vs.  Zhejiang Expressway Co

Arcosa Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arcosa Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Arcosa may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Zhejiang Expressway

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Expressway Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Zhejiang Expressway is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Arcosa and Zhejiang Expressway

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

The idea behind Arcosa Inc and Zhejiang Expressway Co 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.