Correlation Between China Asset and Shandong Mining

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

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

Diversification Opportunities for China Asset and Shandong Mining

-0.41

Correlation Coefficient

China Asset  Shandong Mining

Very good diversification

The 3 months correlation between China and Shandong is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding China Asset Management and Shandong Mining Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Mining Machinery and China Asset 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 China Asset Management are associated (or correlated) with Shandong Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Mining Machinery has no effect on the direction of China Asset i.e., China Asset and Shandong Mining go up and down completely randomly.

Pair Corralation between China Asset and Shandong Mining

Assuming the 90 days trading horizon China Asset Management is expected to under-perform the Shandong Mining. But the stock apears to be less risky and, when comparing its historical volatility, China Asset Management is 4.18 times less risky than Shandong Mining. The stock trades about -0.01 of its potential returns per unit of risk. The Shandong Mining Machinery is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  215.00  in Shandong Mining Machinery on September 3, 2024 and sell it today you would earn a total of  145.00  from holding Shandong Mining Machinery or generate 67.44% return on investment over 90 days.

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

China Asset Management  vs.  Shandong Mining Machinery

China Asset Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Asset Management has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shandong Mining Machinery

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 19 (%) 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.

Pair Trading with China Asset and Shandong Mining

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

The idea behind China Asset Management and Shandong Mining Machinery 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.