Correlation Between Kunshan Guoli and Shantui Construction

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

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

Diversification Opportunities for Kunshan Guoli and Shantui Construction

0.77

Correlation Coefficient

Kunshan Guoli  Shantui Construction

Poor diversification

The 3 months correlation between Kunshan and Shantui is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Kunshan Guoli Electronic and Shantui Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shantui Construction and Kunshan Guoli 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 Kunshan Guoli Electronic are associated (or correlated) with Shantui Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shantui Construction has no effect on the direction of Kunshan Guoli i.e., Kunshan Guoli and Shantui Construction go up and down completely randomly.

Pair Corralation between Kunshan Guoli and Shantui Construction

Assuming the 90 days trading horizon Kunshan Guoli is expected to generate 1.17 times less return on investment than Shantui Construction. In addition to that, Kunshan Guoli is 1.32 times more volatile than Shantui Construction Machinery. It trades about 0.16 of its total potential returns per unit of risk. Shantui Construction Machinery is currently generating about 0.25 per unit of volatility. If you would invest  666.00  in Shantui Construction Machinery on September 6, 2024 and sell it today you would earn a total of  374.00  from holding Shantui Construction Machinery or generate 56.16% return on investment over 90 days.

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

Kunshan Guoli Electronic  vs.  Shantui Construction Machinery

Kunshan Guoli Electronic

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kunshan Guoli Electronic are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kunshan Guoli sustained solid returns over the last few months and may actually be approaching a breakup point.

Shantui Construction

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shantui Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kunshan Guoli and Shantui Construction

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

The idea behind Kunshan Guoli Electronic and Shantui 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.