Correlation Between Shengda Mining and Tibet Huayu

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

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

Diversification Opportunities for Shengda Mining and Tibet Huayu

0.83

Correlation Coefficient

Shengda Mining  Tibet Huayu

Very poor diversification

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

Pair Corralation between Shengda Mining and Tibet Huayu

Assuming the 90 days trading horizon Shengda Mining is expected to generate 1.09 times less return on investment than Tibet Huayu. But when comparing it to its historical volatility, Shengda Mining Co is 1.31 times less risky than Tibet Huayu. It trades about 0.16 of its potential returns per unit of risk. Tibet Huayu Mining is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,110  in Tibet Huayu Mining on August 31, 2024 and sell it today you would earn a total of  309.00  from holding Tibet Huayu Mining or generate 27.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.25%
Values	Daily Returns

Shengda Mining Co  vs.  Tibet Huayu Mining

Shengda Mining

Risk-Adjusted Performance

12 of 100

Good

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

Tibet Huayu Mining

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Shengda Mining and Tibet Huayu

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

The idea behind Shengda Mining Co and Tibet Huayu Mining 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.