Correlation Between Shanghai Construction and Shanxi Lanhua

Can any of the company-specific risk be diversified away by investing in both Shanghai Construction and Shanxi Lanhua 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 Shanxi Lanhua 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 Shanxi Lanhua Sci Tech, you can compare the effects of market volatilities on Shanghai Construction and Shanxi Lanhua 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 Shanxi Lanhua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Construction and Shanxi Lanhua.

Diversification Opportunities for Shanghai Construction and Shanxi Lanhua

0.18

Correlation Coefficient

Shanghai Construction  Shanxi Lanhua

Average diversification

The 3 months correlation between Shanghai and Shanxi is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Construction Group and Shanxi Lanhua Sci Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanxi Lanhua Sci 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 Shanxi Lanhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanxi Lanhua Sci has no effect on the direction of Shanghai Construction i.e., Shanghai Construction and Shanxi Lanhua go up and down completely randomly.

Pair Corralation between Shanghai Construction and Shanxi Lanhua

Assuming the 90 days trading horizon Shanghai Construction Group is expected to generate 1.29 times more return on investment than Shanxi Lanhua. However, Shanghai Construction is 1.29 times more volatile than Shanxi Lanhua Sci Tech. It trades about 0.09 of its potential returns per unit of risk. Shanxi Lanhua Sci Tech is currently generating about 0.01 per unit of risk. If you would invest  259.00  in Shanghai Construction Group on September 28, 2024 and sell it today you would earn a total of  10.00  from holding Shanghai Construction Group or generate 3.86% return on investment over 90 days.

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

Shanghai Construction Group  vs.  Shanxi Lanhua Sci Tech

Shanghai Construction

Risk-Adjusted Performance

5 of 100

OK

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

Shanxi Lanhua Sci

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanxi Lanhua Sci Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shanghai Construction and Shanxi Lanhua

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

The idea behind Shanghai Construction Group and Shanxi Lanhua Sci Tech 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.