Correlation Between Zhengping RoadBridge and Sinocat Environmental

Can any of the company-specific risk be diversified away by investing in both Zhengping RoadBridge and Sinocat Environmental 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 Zhengping RoadBridge and Sinocat Environmental into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhengping RoadBridge Constr and Sinocat Environmental Technology, you can compare the effects of market volatilities on Zhengping RoadBridge and Sinocat Environmental 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 Zhengping RoadBridge with a short position of Sinocat Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhengping RoadBridge and Sinocat Environmental.

Diversification Opportunities for Zhengping RoadBridge and Sinocat Environmental

0.83

Correlation Coefficient

Zhengping RoadBridge  Sinocat Environmental

Very poor diversification

The 3 months correlation between Zhengping and Sinocat is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Zhengping RoadBridge Constr and Sinocat Environmental Technolo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinocat Environmental and Zhengping RoadBridge 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 Zhengping RoadBridge Constr are associated (or correlated) with Sinocat Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinocat Environmental has no effect on the direction of Zhengping RoadBridge i.e., Zhengping RoadBridge and Sinocat Environmental go up and down completely randomly.

Pair Corralation between Zhengping RoadBridge and Sinocat Environmental

Assuming the 90 days trading horizon Zhengping RoadBridge is expected to generate 1.54 times less return on investment than Sinocat Environmental. But when comparing it to its historical volatility, Zhengping RoadBridge Constr is 1.1 times less risky than Sinocat Environmental. It trades about 0.13 of its potential returns per unit of risk. Sinocat Environmental Technology is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,306  in Sinocat Environmental Technology on September 4, 2024 and sell it today you would earn a total of  662.00  from holding Sinocat Environmental Technology or generate 50.69% return on investment over 90 days.

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

Zhengping RoadBridge Constr  vs.  Sinocat Environmental Technolo

Zhengping RoadBridge

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhengping RoadBridge Constr are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhengping RoadBridge sustained solid returns over the last few months and may actually be approaching a breakup point.

Sinocat Environmental

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Zhengping RoadBridge and Sinocat Environmental

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

The idea behind Zhengping RoadBridge Constr and Sinocat Environmental Technology 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.