Correlation Between Shandong Gold and Ningxia Building

Can any of the company-specific risk be diversified away by investing in both Shandong Gold and Ningxia Building 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 Ningxia Building 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 Ningxia Building Materials, you can compare the effects of market volatilities on Shandong Gold and Ningxia Building 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 Ningxia Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Gold and Ningxia Building.

Diversification Opportunities for Shandong Gold and Ningxia Building

-0.13

Correlation Coefficient

Shandong Gold  Ningxia Building

Good diversification

The 3 months correlation between Shandong and Ningxia is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Gold Mining and Ningxia Building Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningxia Building Mat 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 Ningxia Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningxia Building Mat has no effect on the direction of Shandong Gold i.e., Shandong Gold and Ningxia Building go up and down completely randomly.

Pair Corralation between Shandong Gold and Ningxia Building

Assuming the 90 days trading horizon Shandong Gold Mining is expected to under-perform the Ningxia Building. But the stock apears to be less risky and, when comparing its historical volatility, Shandong Gold Mining is 1.78 times less risky than Ningxia Building. The stock trades about -0.01 of its potential returns per unit of risk. The Ningxia Building Materials is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  986.00  in Ningxia Building Materials on September 14, 2024 and sell it today you would earn a total of  522.00  from holding Ningxia Building Materials or generate 52.94% 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.  Ningxia Building Materials

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.

Ningxia Building Mat

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ningxia Building Materials are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningxia Building sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Gold and Ningxia Building

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

The idea behind Shandong Gold Mining and Ningxia Building Materials 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.