Correlation Between Sichuan Fulin and Shandong Mining

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

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

Diversification Opportunities for Sichuan Fulin and Shandong Mining

0.82

Correlation Coefficient

Sichuan Fulin  Shandong Mining

Very poor diversification

The 3 months correlation between Sichuan and Shandong is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Fulin Transportation and Shandong Mining Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Mining Machinery and Sichuan Fulin 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 Sichuan Fulin Transportation are associated (or correlated) with Shandong Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Mining Machinery has no effect on the direction of Sichuan Fulin i.e., Sichuan Fulin and Shandong Mining go up and down completely randomly.

Pair Corralation between Sichuan Fulin and Shandong Mining

Assuming the 90 days trading horizon Sichuan Fulin Transportation is expected to generate 0.77 times more return on investment than Shandong Mining. However, Sichuan Fulin Transportation is 1.3 times less risky than Shandong Mining. It trades about -0.1 of its potential returns per unit of risk. Shandong Mining Machinery is currently generating about -0.33 per unit of risk. If you would invest  778.00  in Sichuan Fulin Transportation on October 12, 2024 and sell it today you would lose (58.00) from holding Sichuan Fulin Transportation or give up 7.46% of portfolio value over 90 days.

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

Sichuan Fulin Transportation  vs.  Shandong Mining Machinery

Sichuan Fulin Transp

Risk-Adjusted Performance

9 of 100

OK

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

Shandong Mining Machinery

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sichuan Fulin and Shandong Mining

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

The idea behind Sichuan Fulin Transportation and Shandong Mining Machinery 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.