Correlation Between Shanghai Construction and Jizhong Energy

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

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

Diversification Opportunities for Shanghai Construction and Jizhong Energy

0.87

Correlation Coefficient

Shanghai Construction  Jizhong Energy

Very poor diversification

The 3 months correlation between Shanghai and Jizhong is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Construction Group and Jizhong Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jizhong Energy Resources and Shanghai Construction 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 Shanghai Construction Group are associated (or correlated) with Jizhong Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jizhong Energy Resources has no effect on the direction of Shanghai Construction i.e., Shanghai Construction and Jizhong Energy go up and down completely randomly.

Pair Corralation between Shanghai Construction and Jizhong Energy

Assuming the 90 days trading horizon Shanghai Construction Group is expected to generate 1.19 times more return on investment than Jizhong Energy. However, Shanghai Construction is 1.19 times more volatile than Jizhong Energy Resources. It trades about 0.11 of its potential returns per unit of risk. Jizhong Energy Resources is currently generating about 0.08 per unit of risk. If you would invest  260.00  in Shanghai Construction Group on September 23, 2024 and sell it today you would earn a total of  13.00  from holding Shanghai Construction Group or generate 5.0% return on investment over 90 days.

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

Shanghai Construction Group  vs.  Jizhong Energy Resources

Shanghai Construction

Risk-Adjusted Performance

14 of 100

Good

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

Jizhong Energy Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jizhong Energy Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jizhong Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Construction and Jizhong Energy

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

The idea behind Shanghai Construction Group and Jizhong Energy Resources 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.