Correlation Between Shengda Mining and Huafa Industrial

Can any of the company-specific risk be diversified away by investing in both Shengda Mining and Huafa Industrial 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 Huafa Industrial 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 Huafa Industrial Co, you can compare the effects of market volatilities on Shengda Mining and Huafa Industrial 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 Huafa Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shengda Mining and Huafa Industrial.

Diversification Opportunities for Shengda Mining and Huafa Industrial

0.75

Correlation Coefficient

Shengda Mining  Huafa Industrial

Poor diversification

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

Pair Corralation between Shengda Mining and Huafa Industrial

Assuming the 90 days trading horizon Shengda Mining Co is expected to generate 1.22 times more return on investment than Huafa Industrial. However, Shengda Mining is 1.22 times more volatile than Huafa Industrial Co. It trades about -0.01 of its potential returns per unit of risk. Huafa Industrial Co is currently generating about -0.11 per unit of risk. If you would invest  1,253  in Shengda Mining Co on October 9, 2024 and sell it today you would lose (46.00) from holding Shengda Mining Co or give up 3.67% of portfolio value over 90 days.

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

Shengda Mining Co  vs.  Huafa Industrial Co

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.

Huafa Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huafa Industrial Co 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shengda Mining and Huafa Industrial

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

The idea behind Shengda Mining Co and Huafa Industrial Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.