Correlation Between Tongling Nonferrous and Shandong Longda

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

By analyzing existing cross correlation between Tongling Nonferrous Metals and Shandong Longda Meat, you can compare the effects of market volatilities on Tongling Nonferrous and Shandong Longda 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 Tongling Nonferrous with a short position of Shandong Longda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tongling Nonferrous and Shandong Longda.

Diversification Opportunities for Tongling Nonferrous and Shandong Longda

-0.18

Correlation Coefficient

Tongling Nonferrous  Shandong Longda

Good diversification

The 3 months correlation between Tongling and Shandong is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Tongling Nonferrous Metals and Shandong Longda Meat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Longda Meat and Tongling Nonferrous 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 Tongling Nonferrous Metals are associated (or correlated) with Shandong Longda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Longda Meat has no effect on the direction of Tongling Nonferrous i.e., Tongling Nonferrous and Shandong Longda go up and down completely randomly.

Pair Corralation between Tongling Nonferrous and Shandong Longda

Assuming the 90 days trading horizon Tongling Nonferrous Metals is expected to generate 0.53 times more return on investment than Shandong Longda. However, Tongling Nonferrous Metals is 1.89 times less risky than Shandong Longda. It trades about -0.39 of its potential returns per unit of risk. Shandong Longda Meat is currently generating about -0.22 per unit of risk. If you would invest  358.00  in Tongling Nonferrous Metals on October 12, 2024 and sell it today you would lose (36.00) from holding Tongling Nonferrous Metals or give up 10.06% of portfolio value over 90 days.

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

Tongling Nonferrous Metals  vs.  Shandong Longda Meat

Tongling Nonferrous

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tongling Nonferrous Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shandong Longda Meat

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Tongling Nonferrous and Shandong Longda

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

The idea behind Tongling Nonferrous Metals and Shandong Longda Meat 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.