Correlation Between Guangdong Brandmax and Shaanxi Construction

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

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

Diversification Opportunities for Guangdong Brandmax and Shaanxi Construction

0.84

Correlation Coefficient

Guangdong Brandmax  Shaanxi Construction

Very poor diversification

The 3 months correlation between Guangdong and Shaanxi is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Brandmax Marketing and Shaanxi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Construction and Guangdong Brandmax 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 Guangdong Brandmax Marketing 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 Guangdong Brandmax i.e., Guangdong Brandmax and Shaanxi Construction go up and down completely randomly.

Pair Corralation between Guangdong Brandmax and Shaanxi Construction

Assuming the 90 days trading horizon Guangdong Brandmax is expected to generate 1.19 times less return on investment than Shaanxi Construction. In addition to that, Guangdong Brandmax is 1.1 times more volatile than Shaanxi Construction Machinery. It trades about 0.19 of its total potential returns per unit of risk. Shaanxi Construction Machinery is currently generating about 0.25 per unit of volatility. If you would invest  217.00  in Shaanxi Construction Machinery on September 13, 2024 and sell it today you would earn a total of  159.00  from holding Shaanxi Construction Machinery or generate 73.27% return on investment over 90 days.

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

Guangdong Brandmax Marketing  vs.  Shaanxi Construction Machinery

Guangdong Brandmax

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Brandmax Marketing are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Brandmax sustained solid returns over the last few months and may actually be approaching a breakup point.

Shaanxi Construction

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Construction Machinery are ranked lower than 19 (%) 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 Guangdong Brandmax and Shaanxi Construction

The main advantage of trading using opposite Guangdong Brandmax and Shaanxi Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guangdong Brandmax 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 Guangdong Brandmax Marketing 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.