Correlation Between Dongxing Sec and Ningbo Construction

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

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

Diversification Opportunities for Dongxing Sec and Ningbo Construction

0.8

Correlation Coefficient

Dongxing Sec  Ningbo Construction

Very poor diversification

The 3 months correlation between Dongxing and Ningbo is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Dongxing Sec Co and Ningbo Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Construction and Dongxing Sec 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 Dongxing Sec Co are associated (or correlated) with Ningbo Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Construction has no effect on the direction of Dongxing Sec i.e., Dongxing Sec and Ningbo Construction go up and down completely randomly.

Pair Corralation between Dongxing Sec and Ningbo Construction

Assuming the 90 days trading horizon Dongxing Sec Co is expected to under-perform the Ningbo Construction. But the stock apears to be less risky and, when comparing its historical volatility, Dongxing Sec Co is 2.02 times less risky than Ningbo Construction. The stock trades about -0.14 of its potential returns per unit of risk. The Ningbo Construction Co is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  440.00  in Ningbo Construction Co on September 12, 2024 and sell it today you would earn a total of  40.00  from holding Ningbo Construction Co or generate 9.09% return on investment over 90 days.

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

Dongxing Sec Co  vs.  Ningbo Construction Co

Dongxing Sec

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongxing Sec Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongxing Sec sustained solid returns over the last few months and may actually be approaching a breakup point.

Ningbo Construction

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Construction Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongxing Sec and Ningbo Construction

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

The idea behind Dongxing Sec Co and Ningbo Construction 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.