Correlation Between Shandong Hongchuang and Sinomach Automobile

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

Diversification Opportunities for Shandong Hongchuang and Sinomach Automobile

0.74

Correlation Coefficient

Shandong Hongchuang  Sinomach Automobile

Poor diversification

The 3 months correlation between Shandong and Sinomach is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Hongchuang Aluminum and Sinomach Automobile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinomach Automobile 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 Sinomach Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinomach Automobile has no effect on the direction of Shandong Hongchuang i.e., Shandong Hongchuang and Sinomach Automobile go up and down completely randomly.

Pair Corralation between Shandong Hongchuang and Sinomach Automobile

Assuming the 90 days trading horizon Shandong Hongchuang Aluminum is expected to generate 1.15 times more return on investment than Sinomach Automobile. However, Shandong Hongchuang is 1.15 times more volatile than Sinomach Automobile Co. It trades about 0.23 of its potential returns per unit of risk. Sinomach Automobile Co is currently generating about 0.0 per unit of risk. If you would invest  587.00  in Shandong Hongchuang Aluminum on September 28, 2024 and sell it today you would earn a total of  310.00  from holding Shandong Hongchuang Aluminum or generate 52.81% return on investment over 90 days.

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

Shandong Hongchuang Aluminum  vs.  Sinomach Automobile Co

Shandong Hongchuang

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hongchuang Aluminum are ranked lower than 18 (%) 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.

Sinomach Automobile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sinomach Automobile Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sinomach Automobile 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 Sinomach Automobile

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

The idea behind Shandong Hongchuang Aluminum and Sinomach Automobile 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.