Correlation Between Sinocat Environmental and Shandong

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

By analyzing existing cross correlation between Sinocat Environmental Technology and Shandong Hi Speed RoadBridge, you can compare the effects of market volatilities on Sinocat Environmental and Shandong 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 Sinocat Environmental with a short position of Shandong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sinocat Environmental and Shandong.

Diversification Opportunities for Sinocat Environmental and Shandong

0.75

Correlation Coefficient

Sinocat Environmental  Shandong

Poor diversification

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

Pair Corralation between Sinocat Environmental and Shandong

Assuming the 90 days trading horizon Sinocat Environmental Technology is expected to generate 1.56 times more return on investment than Shandong. However, Sinocat Environmental is 1.56 times more volatile than Shandong Hi Speed RoadBridge. It trades about 0.27 of its potential returns per unit of risk. Shandong Hi Speed RoadBridge is currently generating about 0.19 per unit of risk. If you would invest  1,263  in Sinocat Environmental Technology on September 12, 2024 and sell it today you would earn a total of  1,068  from holding Sinocat Environmental Technology or generate 84.56% return on investment over 90 days.

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

Sinocat Environmental Technolo  vs.  Shandong Hi Speed RoadBridge

Sinocat Environmental

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sinocat Environmental Technology are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinocat Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Hi Speed

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hi Speed RoadBridge are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sinocat Environmental and Shandong

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

The idea behind Sinocat Environmental Technology and Shandong Hi Speed RoadBridge 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.