Correlation Between Shandong and Zhengping RoadBridge

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

By analyzing existing cross correlation between Shandong Hi Speed RoadBridge and Zhengping RoadBridge Constr, you can compare the effects of market volatilities on Shandong and Zhengping RoadBridge 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 Shandong with a short position of Zhengping RoadBridge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong and Zhengping RoadBridge.

Diversification Opportunities for Shandong and Zhengping RoadBridge

0.86

Correlation Coefficient

Shandong  Zhengping RoadBridge

Very poor diversification

The 3 months correlation between Shandong and Zhengping is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Hi Speed RoadBridge and Zhengping RoadBridge Constr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhengping RoadBridge and Shandong 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 Shandong Hi Speed RoadBridge are associated (or correlated) with Zhengping RoadBridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhengping RoadBridge has no effect on the direction of Shandong i.e., Shandong and Zhengping RoadBridge go up and down completely randomly.

Pair Corralation between Shandong and Zhengping RoadBridge

Assuming the 90 days trading horizon Shandong is expected to generate 1.04 times less return on investment than Zhengping RoadBridge. But when comparing it to its historical volatility, Shandong Hi Speed RoadBridge is 1.41 times less risky than Zhengping RoadBridge. It trades about 0.18 of its potential returns per unit of risk. Zhengping RoadBridge Constr is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  246.00  in Zhengping RoadBridge Constr on September 4, 2024 and sell it today you would earn a total of  72.00  from holding Zhengping RoadBridge Constr or generate 29.27% return on investment over 90 days.

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

Shandong Hi Speed RoadBridge  vs.  Zhengping RoadBridge Constr

Shandong Hi Speed

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hi Speed RoadBridge are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong sustained solid returns over the last few months and may actually be approaching a breakup point.

Zhengping RoadBridge

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhengping RoadBridge Constr are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhengping RoadBridge sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong and Zhengping RoadBridge

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

The idea behind Shandong Hi Speed RoadBridge and Zhengping RoadBridge Constr 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.