Correlation Between Ningbo Construction and Allied Machinery

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

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

Diversification Opportunities for Ningbo Construction and Allied Machinery

0.95

Correlation Coefficient

Ningbo Construction  Allied Machinery

Almost no diversification

The 3 months correlation between Ningbo and Allied is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Construction Co and Allied Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Machinery and Ningbo 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 Ningbo Construction Co are associated (or correlated) with Allied Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Machinery has no effect on the direction of Ningbo Construction i.e., Ningbo Construction and Allied Machinery go up and down completely randomly.

Pair Corralation between Ningbo Construction and Allied Machinery

Assuming the 90 days trading horizon Ningbo Construction Co is expected to generate 1.77 times more return on investment than Allied Machinery. However, Ningbo Construction is 1.77 times more volatile than Allied Machinery Co. It trades about 0.22 of its potential returns per unit of risk. Allied Machinery Co is currently generating about 0.17 per unit of risk. If you would invest  419.00  in Ningbo Construction Co on September 5, 2024 and sell it today you would earn a total of  97.00  from holding Ningbo Construction Co or generate 23.15% return on investment over 90 days.

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

Ningbo Construction Co  vs.  Allied Machinery Co

Ningbo Construction

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Construction Co are ranked lower than 16 (%) 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.

Allied Machinery

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Machinery Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Allied Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ningbo Construction and Allied Machinery

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

The idea behind Ningbo Construction Co and Allied Machinery 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.

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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .