Correlation Between Shandong Gold and Hubei Xingfa

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

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

Diversification Opportunities for Shandong Gold and Hubei Xingfa

-0.26

Correlation Coefficient

Shandong Gold  Hubei Xingfa

Very good diversification

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

Pair Corralation between Shandong Gold and Hubei Xingfa

Assuming the 90 days trading horizon Shandong Gold Mining is expected to under-perform the Hubei Xingfa. But the stock apears to be less risky and, when comparing its historical volatility, Shandong Gold Mining is 1.42 times less risky than Hubei Xingfa. The stock trades about -0.05 of its potential returns per unit of risk. The Hubei Xingfa Chemicals is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,931  in Hubei Xingfa Chemicals on September 2, 2024 and sell it today you would earn a total of  383.00  from holding Hubei Xingfa Chemicals or generate 19.83% return on investment over 90 days.

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

Shandong Gold Mining  vs.  Hubei Xingfa Chemicals

Shandong Gold Mining

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hubei Xingfa Chemicals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Xingfa Chemicals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Xingfa sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Gold and Hubei Xingfa

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

The idea behind Shandong Gold Mining and Hubei Xingfa Chemicals 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.