Correlation Between Shandong Hongchuang and ZJBC Information

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

By analyzing existing cross correlation between Shandong Hongchuang Aluminum and ZJBC Information Technology, you can compare the effects of market volatilities on Shandong Hongchuang and ZJBC Information 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 Shandong Hongchuang with a short position of ZJBC Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Hongchuang and ZJBC Information.

Diversification Opportunities for Shandong Hongchuang and ZJBC Information

0.59

Correlation Coefficient

Shandong Hongchuang  ZJBC Information

Very weak diversification

The 3 months correlation between Shandong and ZJBC is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Hongchuang Aluminum and ZJBC Information Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZJBC Information Tec and Shandong Hongchuang 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 Shandong Hongchuang Aluminum are associated (or correlated) with ZJBC Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZJBC Information Tec has no effect on the direction of Shandong Hongchuang i.e., Shandong Hongchuang and ZJBC Information go up and down completely randomly.

Pair Corralation between Shandong Hongchuang and ZJBC Information

Assuming the 90 days trading horizon Shandong Hongchuang Aluminum is expected to generate 0.8 times more return on investment than ZJBC Information. However, Shandong Hongchuang Aluminum is 1.25 times less risky than ZJBC Information. It trades about 0.12 of its potential returns per unit of risk. ZJBC Information Technology is currently generating about 0.03 per unit of risk. If you would invest  798.00  in Shandong Hongchuang Aluminum on October 9, 2024 and sell it today you would earn a total of  99.00  from holding Shandong Hongchuang Aluminum or generate 12.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.62%
Values	Daily Returns

Shandong Hongchuang Aluminum  vs.  ZJBC Information Technology

Shandong Hongchuang

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hongchuang Aluminum are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Hongchuang sustained solid returns over the last few months and may actually be approaching a breakup point.

ZJBC Information Tec

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ZJBC Information Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ZJBC Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Hongchuang and ZJBC Information

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

The idea behind Shandong Hongchuang Aluminum and ZJBC Information Technology 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.