Correlation Between Western Metal and Shandong Publishing

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

By analyzing existing cross correlation between Western Metal Materials and Shandong Publishing Media, you can compare the effects of market volatilities on Western Metal and Shandong Publishing 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 Western Metal with a short position of Shandong Publishing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Metal and Shandong Publishing.

Diversification Opportunities for Western Metal and Shandong Publishing

-0.69

Correlation Coefficient

Western Metal  Shandong Publishing

Excellent diversification

The 3 months correlation between Western and Shandong is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Western Metal Materials and Shandong Publishing Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Publishing Media and Western Metal 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 Western Metal Materials are associated (or correlated) with Shandong Publishing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Publishing Media has no effect on the direction of Western Metal i.e., Western Metal and Shandong Publishing go up and down completely randomly.

Pair Corralation between Western Metal and Shandong Publishing

Assuming the 90 days trading horizon Western Metal Materials is expected to generate 1.1 times more return on investment than Shandong Publishing. However, Western Metal is 1.1 times more volatile than Shandong Publishing Media. It trades about 0.13 of its potential returns per unit of risk. Shandong Publishing Media is currently generating about 0.05 per unit of risk. If you would invest  1,221  in Western Metal Materials on September 21, 2024 and sell it today you would earn a total of  510.00  from holding Western Metal Materials or generate 41.77% return on investment over 90 days.

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

Western Metal Materials  vs.  Shandong Publishing Media

Western Metal Materials

Risk-Adjusted Performance

14 of 100

Good

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

Shandong Publishing Media

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Publishing Media are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shandong Publishing is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Metal and Shandong Publishing

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

The idea behind Western Metal Materials and Shandong Publishing Media 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.