Correlation Between Shantui Construction and Western Mining

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

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

Diversification Opportunities for Shantui Construction and Western Mining

-0.49

Correlation Coefficient

Shantui Construction  Western Mining

Very good diversification

The 3 months correlation between Shantui and Western is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Shantui Construction Machinery and Western Mining Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Mining and Shantui Construction 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 Shantui Construction Machinery are associated (or correlated) with Western Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Mining has no effect on the direction of Shantui Construction i.e., Shantui Construction and Western Mining go up and down completely randomly.

Pair Corralation between Shantui Construction and Western Mining

Assuming the 90 days trading horizon Shantui Construction is expected to generate 4.1 times less return on investment than Western Mining. In addition to that, Shantui Construction is 1.11 times more volatile than Western Mining Co. It trades about 0.01 of its total potential returns per unit of risk. Western Mining Co is currently generating about 0.04 per unit of volatility. If you would invest  1,674  in Western Mining Co on October 10, 2024 and sell it today you would earn a total of  21.00  from holding Western Mining Co or generate 1.25% return on investment over 90 days.

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

Shantui Construction Machinery  vs.  Western Mining Co

Shantui Construction

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shantui Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Western Mining

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shantui Construction and Western Mining

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

The idea behind Shantui Construction Machinery and Western Mining 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.