Correlation Between China Satellite and Shandong Mining

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Can any of the company-specific risk be diversified away by investing in both China Satellite 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 Satellite 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 Satellite Communications and Shandong Mining Machinery, you can compare the effects of market volatilities on China Satellite 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 Satellite with a short position of Shandong Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Satellite and Shandong Mining.

Diversification Opportunities for China Satellite and Shandong Mining

ChinaShandongDiversified AwayChinaShandongDiversified Away100%
0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between China and Shandong is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding China Satellite Communications 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 Satellite 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 Satellite Communications 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 Satellite i.e., China Satellite and Shandong Mining go up and down completely randomly.

Pair Corralation between China Satellite and Shandong Mining

Assuming the 90 days trading horizon China Satellite is expected to generate 1.55 times less return on investment than Shandong Mining. But when comparing it to its historical volatility, China Satellite Communications is 1.14 times less risky than Shandong Mining. It trades about 0.21 of its potential returns per unit of risk. Shandong Mining Machinery is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  207.00  in Shandong Mining Machinery on September 14, 2024 and sell it today you would earn a total of  250.00  from holding Shandong Mining Machinery or generate 120.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

China Satellite Communications  vs.  Shandong Mining Machinery

 Performance 
JavaScript chart by amCharts 3.21.15OctNov 050100150
JavaScript chart by amCharts 3.21.15601698 002526
       Timeline  
China Satellite Comm 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in China Satellite Communications are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Satellite sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec1416182022242628
Shandong Mining Machinery 

Risk-Adjusted Performance

22 of 100

 
Weak
 
Strong
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 22 (%) 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.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec22.533.544.555.5

China Satellite and Shandong Mining Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-13.41-10.05-6.68-3.310.03.517.210.8914.5818.27 0.0140.0160.0180.020
JavaScript chart by amCharts 3.21.15601698 002526
       Returns  

Pair Trading with China Satellite and Shandong Mining

The main advantage of trading using opposite China Satellite and Shandong Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Satellite 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 Satellite Communications 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.
Check out your portfolio center.
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.

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