Correlation Between Offshore Oil and XCMG Construction

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

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

Diversification Opportunities for Offshore Oil and XCMG Construction

0.81

Correlation Coefficient

Offshore Oil  XCMG Construction

Very poor diversification

The 3 months correlation between Offshore and XCMG is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Offshore Oil Engineering and XCMG Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XCMG Construction and Offshore Oil 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 Offshore Oil Engineering are associated (or correlated) with XCMG Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XCMG Construction has no effect on the direction of Offshore Oil i.e., Offshore Oil and XCMG Construction go up and down completely randomly.

Pair Corralation between Offshore Oil and XCMG Construction

Assuming the 90 days trading horizon Offshore Oil Engineering is expected to under-perform the XCMG Construction. But the stock apears to be less risky and, when comparing its historical volatility, Offshore Oil Engineering is 1.02 times less risky than XCMG Construction. The stock trades about -0.01 of its potential returns per unit of risk. The XCMG Construction Machinery is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  688.00  in XCMG Construction Machinery on September 23, 2024 and sell it today you would earn a total of  56.00  from holding XCMG Construction Machinery or generate 8.14% return on investment over 90 days.

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

Offshore Oil Engineering  vs.  XCMG Construction Machinery

Offshore Oil Engineering

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Offshore Oil Engineering are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Offshore Oil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

XCMG Construction

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in XCMG Construction Machinery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, XCMG Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Offshore Oil and XCMG Construction

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

The idea behind Offshore Oil Engineering and XCMG 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..