Correlation Between Song Hong and Fecon Mining

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

By analyzing existing cross correlation between Song Hong Aluminum and Fecon Mining JSC, you can compare the effects of market volatilities on Song Hong and Fecon 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 Song Hong with a short position of Fecon Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Hong and Fecon Mining.

Diversification Opportunities for Song Hong and Fecon Mining

0.37

Correlation Coefficient

Song Hong  Fecon Mining

Weak diversification

The 3 months correlation between Song and Fecon is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Song Hong Aluminum and Fecon Mining JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fecon Mining JSC and Song Hong 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 Song Hong Aluminum are associated (or correlated) with Fecon Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fecon Mining JSC has no effect on the direction of Song Hong i.e., Song Hong and Fecon Mining go up and down completely randomly.

Pair Corralation between Song Hong and Fecon Mining

Assuming the 90 days trading horizon Song Hong Aluminum is expected to under-perform the Fecon Mining. But the stock apears to be less risky and, when comparing its historical volatility, Song Hong Aluminum is 1.21 times less risky than Fecon Mining. The stock trades about -0.04 of its potential returns per unit of risk. The Fecon Mining JSC is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  308,000  in Fecon Mining JSC on September 29, 2024 and sell it today you would earn a total of  57,000  from holding Fecon Mining JSC or generate 18.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Song Hong Aluminum  vs.  Fecon Mining JSC

Song Hong Aluminum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Song Hong Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Fecon Mining JSC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fecon Mining JSC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Fecon Mining displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Song Hong and Fecon Mining

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

The idea behind Song Hong Aluminum and Fecon Mining JSC 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.