Correlation Between Shengda Mining and Longjian Road

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

Diversification Opportunities for Shengda Mining and Longjian Road

0.81

Correlation Coefficient

Shengda Mining  Longjian Road

Very poor diversification

The 3 months correlation between Shengda and Longjian is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Shengda Mining Co and Longjian Road Bridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longjian Road Bridge 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 Longjian Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longjian Road Bridge has no effect on the direction of Shengda Mining i.e., Shengda Mining and Longjian Road go up and down completely randomly.

Pair Corralation between Shengda Mining and Longjian Road

Assuming the 90 days trading horizon Shengda Mining Co is expected to generate 1.17 times more return on investment than Longjian Road. However, Shengda Mining is 1.17 times more volatile than Longjian Road Bridge. It trades about 0.18 of its potential returns per unit of risk. Longjian Road Bridge is currently generating about 0.19 per unit of risk. If you would invest  992.00  in Shengda Mining Co on September 5, 2024 and sell it today you would earn a total of  307.00  from holding Shengda Mining Co or generate 30.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

Shengda Mining Co  vs.  Longjian Road Bridge

Shengda Mining

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shengda Mining Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shengda Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Longjian Road Bridge

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Shengda Mining and Longjian Road

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

The idea behind Shengda Mining Co and Longjian Road Bridge 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.