Correlation Between Shaanxi Construction and Xiangyu Medical

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

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

Diversification Opportunities for Shaanxi Construction and Xiangyu Medical

0.88

Correlation Coefficient

Shaanxi Construction  Xiangyu Medical

Very poor diversification

The 3 months correlation between Shaanxi and Xiangyu is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Shaanxi Construction Machinery and Xiangyu Medical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiangyu Medical and Shaanxi 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 Shaanxi Construction Machinery are associated (or correlated) with Xiangyu Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiangyu Medical has no effect on the direction of Shaanxi Construction i.e., Shaanxi Construction and Xiangyu Medical go up and down completely randomly.

Pair Corralation between Shaanxi Construction and Xiangyu Medical

Assuming the 90 days trading horizon Shaanxi Construction Machinery is expected to generate 0.88 times more return on investment than Xiangyu Medical. However, Shaanxi Construction Machinery is 1.13 times less risky than Xiangyu Medical. It trades about 0.21 of its potential returns per unit of risk. Xiangyu Medical Co is currently generating about 0.11 per unit of risk. If you would invest  225.00  in Shaanxi Construction Machinery on September 5, 2024 and sell it today you would earn a total of  131.00  from holding Shaanxi Construction Machinery or generate 58.22% return on investment over 90 days.

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

Shaanxi Construction Machinery  vs.  Xiangyu Medical Co

Shaanxi Construction

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Construction Machinery are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shaanxi Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Xiangyu Medical

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Shaanxi Construction and Xiangyu Medical

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

The idea behind Shaanxi Construction Machinery and Xiangyu Medical Co 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.