Correlation Between Shandong and Gome Telecom

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

By analyzing existing cross correlation between Shandong Hi Speed RoadBridge and Gome Telecom Equipment, you can compare the effects of market volatilities on Shandong and Gome Telecom 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 Shandong with a short position of Gome Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong and Gome Telecom.

Diversification Opportunities for Shandong and Gome Telecom

0.26

Correlation Coefficient

Shandong  Gome Telecom

Modest diversification

The 3 months correlation between Shandong and Gome is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Hi Speed RoadBridge and Gome Telecom Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gome Telecom Equipment and Shandong 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 Shandong Hi Speed RoadBridge are associated (or correlated) with Gome Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gome Telecom Equipment has no effect on the direction of Shandong i.e., Shandong and Gome Telecom go up and down completely randomly.

Pair Corralation between Shandong and Gome Telecom

Assuming the 90 days trading horizon Shandong Hi Speed RoadBridge is expected to generate 0.81 times more return on investment than Gome Telecom. However, Shandong Hi Speed RoadBridge is 1.23 times less risky than Gome Telecom. It trades about 0.13 of its potential returns per unit of risk. Gome Telecom Equipment is currently generating about -0.05 per unit of risk. If you would invest  495.00  in Shandong Hi Speed RoadBridge on September 23, 2024 and sell it today you would earn a total of  111.00  from holding Shandong Hi Speed RoadBridge or generate 22.42% return on investment over 90 days.

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

Shandong Hi Speed RoadBridge  vs.  Gome Telecom Equipment

Shandong Hi Speed

Risk-Adjusted Performance

10 of 100

OK

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

Gome Telecom Equipment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gome Telecom Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Shandong and Gome Telecom

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

The idea behind Shandong Hi Speed RoadBridge and Gome Telecom Equipment 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.