Correlation Between Shandong Hongchuang and GEM

Can any of the company-specific risk be diversified away by investing in both Shandong Hongchuang and GEM 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 GEM 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 GEM Co, you can compare the effects of market volatilities on Shandong Hongchuang and GEM 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 GEM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Hongchuang and GEM.

Diversification Opportunities for Shandong Hongchuang and GEM

-0.45

Correlation Coefficient

Shandong Hongchuang  GEM

Very good diversification

The 3 months correlation between Shandong and GEM is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Hongchuang Aluminum and GEM Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEM Co 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 GEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEM Co has no effect on the direction of Shandong Hongchuang i.e., Shandong Hongchuang and GEM go up and down completely randomly.

Pair Corralation between Shandong Hongchuang and GEM

Assuming the 90 days trading horizon Shandong Hongchuang Aluminum is expected to generate 1.83 times more return on investment than GEM. However, Shandong Hongchuang is 1.83 times more volatile than GEM Co. It trades about 0.22 of its potential returns per unit of risk. GEM Co is currently generating about -0.01 per unit of risk. If you would invest  606.00  in Shandong Hongchuang Aluminum on October 15, 2024 and sell it today you would earn a total of  361.00  from holding Shandong Hongchuang Aluminum or generate 59.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Shandong Hongchuang Aluminum  vs.  GEM Co

Shandong Hongchuang

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hongchuang Aluminum are ranked lower than 17 (%) 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.

GEM Co

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shandong Hongchuang and GEM

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

The idea behind Shandong Hongchuang Aluminum and GEM 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.