Correlation Between BTG Hotels and Shanghai Construction

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

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

Diversification Opportunities for BTG Hotels and Shanghai Construction

0.92

Correlation Coefficient

BTG Hotels  Shanghai Construction

Almost no diversification

The 3 months correlation between BTG and Shanghai is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding BTG Hotels Group and Shanghai Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Construction and BTG Hotels 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 BTG Hotels Group are associated (or correlated) with Shanghai Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Construction has no effect on the direction of BTG Hotels i.e., BTG Hotels and Shanghai Construction go up and down completely randomly.

Pair Corralation between BTG Hotels and Shanghai Construction

Assuming the 90 days trading horizon BTG Hotels is expected to generate 6.07 times less return on investment than Shanghai Construction. But when comparing it to its historical volatility, BTG Hotels Group is 1.23 times less risky than Shanghai Construction. It trades about 0.02 of its potential returns per unit of risk. Shanghai Construction Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  245.00  in Shanghai Construction Group on September 30, 2024 and sell it today you would earn a total of  28.00  from holding Shanghai Construction Group or generate 11.43% return on investment over 90 days.

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

BTG Hotels Group  vs.  Shanghai Construction Group

BTG Hotels Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BTG Hotels Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, BTG Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shanghai Construction

Risk-Adjusted Performance

5 of 100

Modest

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 sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BTG Hotels and Shanghai Construction

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

The idea behind BTG Hotels Group and Shanghai 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.

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.