Correlation Between Road Environment and Ningxia Building

Can any of the company-specific risk be diversified away by investing in both Road Environment and Ningxia Building 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 Road Environment and Ningxia Building into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Road Environment Technology and Ningxia Building Materials, you can compare the effects of market volatilities on Road Environment and Ningxia Building 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 Road Environment with a short position of Ningxia Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Road Environment and Ningxia Building.

Diversification Opportunities for Road Environment and Ningxia Building

0.79

Correlation Coefficient

Road Environment  Ningxia Building

Poor diversification

The 3 months correlation between Road and Ningxia is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Road Environment Technology and Ningxia Building Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningxia Building Mat and Road Environment 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 Road Environment Technology are associated (or correlated) with Ningxia Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningxia Building Mat has no effect on the direction of Road Environment i.e., Road Environment and Ningxia Building go up and down completely randomly.

Pair Corralation between Road Environment and Ningxia Building

Assuming the 90 days trading horizon Road Environment Technology is expected to under-perform the Ningxia Building. But the stock apears to be less risky and, when comparing its historical volatility, Road Environment Technology is 1.16 times less risky than Ningxia Building. The stock trades about -0.05 of its potential returns per unit of risk. The Ningxia Building Materials is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,157  in Ningxia Building Materials on September 29, 2024 and sell it today you would earn a total of  344.00  from holding Ningxia Building Materials or generate 29.73% return on investment over 90 days.

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

Road Environment Technology  vs.  Ningxia Building Materials

Road Environment Tec

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Road Environment Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Road Environment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ningxia Building Mat

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ningxia Building Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningxia Building sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Road Environment and Ningxia Building

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

The idea behind Road Environment Technology and Ningxia Building Materials 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.