Correlation Between Shanghai Construction and Sichuan Chuantou

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

Diversification Opportunities for Shanghai Construction and Sichuan Chuantou

-0.48

Correlation Coefficient

Shanghai Construction  Sichuan Chuantou

Very good diversification

The 3 months correlation between Shanghai and Sichuan is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Construction Group and Sichuan Chuantou Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Chuantou Energy 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 Sichuan Chuantou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Chuantou Energy has no effect on the direction of Shanghai Construction i.e., Shanghai Construction and Sichuan Chuantou go up and down completely randomly.

Pair Corralation between Shanghai Construction and Sichuan Chuantou

Assuming the 90 days trading horizon Shanghai Construction Group is expected to generate 1.31 times more return on investment than Sichuan Chuantou. However, Shanghai Construction is 1.31 times more volatile than Sichuan Chuantou Energy. It trades about 0.04 of its potential returns per unit of risk. Sichuan Chuantou Energy is currently generating about 0.04 per unit of risk. If you would invest  234.00  in Shanghai Construction Group on September 24, 2024 and sell it today you would earn a total of  39.00  from holding Shanghai Construction Group or generate 16.67% return on investment over 90 days.

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

Shanghai Construction Group  vs.  Sichuan Chuantou Energy

Shanghai Construction

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Construction Group are ranked lower than 13 (%) 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.

Sichuan Chuantou Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sichuan Chuantou Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sichuan Chuantou is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shanghai Construction and Sichuan Chuantou

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

The idea behind Shanghai Construction Group and Sichuan Chuantou Energy 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.