Correlation Between Inner Mongolia and Shandong Gold

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

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

Diversification Opportunities for Inner Mongolia and Shandong Gold

-0.75

Correlation Coefficient

Inner Mongolia  Shandong Gold

Pay attention - limited upside

The 3 months correlation between Inner and Shandong is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia Junzheng and Shandong Gold Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Gold Mining and Inner Mongolia 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 Inner Mongolia Junzheng are associated (or correlated) with Shandong Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Gold Mining has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Shandong Gold go up and down completely randomly.

Pair Corralation between Inner Mongolia and Shandong Gold

Assuming the 90 days trading horizon Inner Mongolia Junzheng is expected to generate 2.79 times more return on investment than Shandong Gold. However, Inner Mongolia is 2.79 times more volatile than Shandong Gold Mining. It trades about 0.08 of its potential returns per unit of risk. Shandong Gold Mining is currently generating about -0.22 per unit of risk. If you would invest  459.00  in Inner Mongolia Junzheng on September 28, 2024 and sell it today you would earn a total of  87.00  from holding Inner Mongolia Junzheng or generate 18.95% return on investment over 90 days.

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

Inner Mongolia Junzheng  vs.  Shandong Gold Mining

Inner Mongolia Junzheng

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia Junzheng are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Inner Mongolia sustained solid returns over the last few months and may actually be approaching a breakup point.

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Inner Mongolia and Shandong Gold

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

The idea behind Inner Mongolia Junzheng and Shandong Gold Mining 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.