Correlation Between China Securities and Tengda Construction

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

By analyzing existing cross correlation between China Securities 800 and Tengda Construction Group, you can compare the effects of market volatilities on China Securities and Tengda 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 China Securities with a short position of Tengda Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Securities and Tengda Construction.

Diversification Opportunities for China Securities and Tengda Construction

0.94

Correlation Coefficient

China Securities  Tengda Construction

Almost no diversification

The 3 months correlation between China and Tengda is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding China Securities 800 and Tengda Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tengda Construction and China Securities 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 China Securities 800 are associated (or correlated) with Tengda Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tengda Construction has no effect on the direction of China Securities i.e., China Securities and Tengda Construction go up and down completely randomly.

Pair Corralation between China Securities and Tengda Construction

Assuming the 90 days trading horizon China Securities is expected to generate 1.4 times less return on investment than Tengda Construction. In addition to that, China Securities is 1.01 times more volatile than Tengda Construction Group. It trades about 0.16 of its total potential returns per unit of risk. Tengda Construction Group is currently generating about 0.23 per unit of volatility. If you would invest  192.00  in Tengda Construction Group on September 5, 2024 and sell it today you would earn a total of  65.00  from holding Tengda Construction Group or generate 33.85% return on investment over 90 days.

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

China Securities 800  vs.  Tengda Construction Group

Pair Trading with China Securities and Tengda Construction

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

The idea behind China Securities 800 and Tengda Construction Group 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.