Correlation Between Shengda Mining and Guangzhou Haozhi

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

By analyzing existing cross correlation between Shengda Mining Co and Guangzhou Haozhi Industrial, you can compare the effects of market volatilities on Shengda Mining and Guangzhou Haozhi 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 Shengda Mining with a short position of Guangzhou Haozhi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shengda Mining and Guangzhou Haozhi.

Diversification Opportunities for Shengda Mining and Guangzhou Haozhi

-0.14

Correlation Coefficient

Shengda Mining  Guangzhou Haozhi

Good diversification

The 3 months correlation between Shengda and Guangzhou is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Shengda Mining Co and Guangzhou Haozhi Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Haozhi Ind and Shengda Mining 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 Shengda Mining Co are associated (or correlated) with Guangzhou Haozhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Haozhi Ind has no effect on the direction of Shengda Mining i.e., Shengda Mining and Guangzhou Haozhi go up and down completely randomly.

Pair Corralation between Shengda Mining and Guangzhou Haozhi

Assuming the 90 days trading horizon Shengda Mining is expected to generate 14.79 times less return on investment than Guangzhou Haozhi. But when comparing it to its historical volatility, Shengda Mining Co is 1.4 times less risky than Guangzhou Haozhi. It trades about 0.01 of its potential returns per unit of risk. Guangzhou Haozhi Industrial is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  897.00  in Guangzhou Haozhi Industrial on October 11, 2024 and sell it today you would earn a total of  926.00  from holding Guangzhou Haozhi Industrial or generate 103.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Shengda Mining Co  vs.  Guangzhou Haozhi Industrial

Shengda Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shengda Mining Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shengda Mining is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Guangzhou Haozhi Ind

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Haozhi Industrial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Haozhi sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shengda Mining and Guangzhou Haozhi

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

The idea behind Shengda Mining Co and Guangzhou Haozhi Industrial 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.