Correlation Between Guocheng Mining and Shengda Mining

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

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

Diversification Opportunities for Guocheng Mining and Shengda Mining

0.8

Correlation Coefficient

Guocheng Mining  Shengda Mining

Very poor diversification

The 3 months correlation between Guocheng and Shengda is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Guocheng Mining Co and Shengda Mining Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shengda Mining and Guocheng 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 Guocheng Mining Co are associated (or correlated) with Shengda Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shengda Mining has no effect on the direction of Guocheng Mining i.e., Guocheng Mining and Shengda Mining go up and down completely randomly.

Pair Corralation between Guocheng Mining and Shengda Mining

Assuming the 90 days trading horizon Guocheng Mining Co is expected to generate 1.28 times more return on investment than Shengda Mining. However, Guocheng Mining is 1.28 times more volatile than Shengda Mining Co. It trades about 0.21 of its potential returns per unit of risk. Shengda Mining Co is currently generating about 0.16 per unit of risk. If you would invest  928.00  in Guocheng Mining Co on September 2, 2024 and sell it today you would earn a total of  483.00  from holding Guocheng Mining Co or generate 52.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.31%
Values	Daily Returns

Guocheng Mining Co  vs.  Shengda Mining Co

Guocheng Mining

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guocheng Mining Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guocheng Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Guocheng Mining and Shengda Mining

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

The idea behind Guocheng Mining Co and Shengda Mining Co 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.