Correlation Between Zhongshan Broad and Sinosteel Luonai

Can any of the company-specific risk be diversified away by investing in both Zhongshan Broad and Sinosteel Luonai 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 Zhongshan Broad and Sinosteel Luonai into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhongshan Broad Ocean Motor and Sinosteel Luonai Materials, you can compare the effects of market volatilities on Zhongshan Broad and Sinosteel Luonai 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 Zhongshan Broad with a short position of Sinosteel Luonai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongshan Broad and Sinosteel Luonai.

Diversification Opportunities for Zhongshan Broad and Sinosteel Luonai

0.36

Correlation Coefficient

Zhongshan Broad  Sinosteel Luonai

Weak diversification

The 3 months correlation between Zhongshan and Sinosteel is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Zhongshan Broad Ocean Motor and Sinosteel Luonai Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinosteel Luonai Mat and Zhongshan Broad 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 Zhongshan Broad Ocean Motor are associated (or correlated) with Sinosteel Luonai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinosteel Luonai Mat has no effect on the direction of Zhongshan Broad i.e., Zhongshan Broad and Sinosteel Luonai go up and down completely randomly.

Pair Corralation between Zhongshan Broad and Sinosteel Luonai

Assuming the 90 days trading horizon Zhongshan Broad Ocean Motor is expected to generate 1.05 times more return on investment than Sinosteel Luonai. However, Zhongshan Broad is 1.05 times more volatile than Sinosteel Luonai Materials. It trades about 0.08 of its potential returns per unit of risk. Sinosteel Luonai Materials is currently generating about -0.03 per unit of risk. If you would invest  532.00  in Zhongshan Broad Ocean Motor on October 24, 2024 and sell it today you would earn a total of  55.00  from holding Zhongshan Broad Ocean Motor or generate 10.34% return on investment over 90 days.

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

Zhongshan Broad Ocean Motor  vs.  Sinosteel Luonai Materials

Zhongshan Broad Ocean

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongshan Broad Ocean Motor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongshan Broad may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sinosteel Luonai Mat

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Zhongshan Broad and Sinosteel Luonai

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

The idea behind Zhongshan Broad Ocean Motor and Sinosteel Luonai Materials 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.