Correlation Between Shandong Mining and Jiaozuo Wanfang

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

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

Diversification Opportunities for Shandong Mining and Jiaozuo Wanfang

0.45

Correlation Coefficient

Shandong Mining  Jiaozuo Wanfang

Very weak diversification

The 3 months correlation between Shandong and Jiaozuo is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and Jiaozuo Wanfang Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiaozuo Wanfang Aluminum and Shandong 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 Shandong Mining Machinery are associated (or correlated) with Jiaozuo Wanfang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiaozuo Wanfang Aluminum has no effect on the direction of Shandong Mining i.e., Shandong Mining and Jiaozuo Wanfang go up and down completely randomly.

Pair Corralation between Shandong Mining and Jiaozuo Wanfang

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to generate 1.27 times more return on investment than Jiaozuo Wanfang. However, Shandong Mining is 1.27 times more volatile than Jiaozuo Wanfang Aluminum. It trades about 0.4 of its potential returns per unit of risk. Jiaozuo Wanfang Aluminum is currently generating about 0.16 per unit of risk. If you would invest  211.00  in Shandong Mining Machinery on September 9, 2024 and sell it today you would earn a total of  370.00  from holding Shandong Mining Machinery or generate 175.36% return on investment over 90 days.

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

Shandong Mining Machinery  vs.  Jiaozuo Wanfang Aluminum

Shandong Mining Machinery

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Jiaozuo Wanfang Aluminum

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Shandong Mining and Jiaozuo Wanfang

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

The idea behind Shandong Mining Machinery and Jiaozuo Wanfang Aluminum 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.