Correlation Between Shandong Hongchuang and Niutech Environment

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

Diversification Opportunities for Shandong Hongchuang and Niutech Environment

0.08

Correlation Coefficient

Shandong Hongchuang  Niutech Environment

Significant diversification

The 3 months correlation between Shandong and Niutech is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Hongchuang Aluminum and Niutech Environment Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Niutech Environment 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 Niutech Environment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Niutech Environment has no effect on the direction of Shandong Hongchuang i.e., Shandong Hongchuang and Niutech Environment go up and down completely randomly.

Pair Corralation between Shandong Hongchuang and Niutech Environment

Assuming the 90 days trading horizon Shandong Hongchuang Aluminum is expected to generate 1.03 times more return on investment than Niutech Environment. However, Shandong Hongchuang is 1.03 times more volatile than Niutech Environment Technology. It trades about 0.21 of its potential returns per unit of risk. Niutech Environment Technology is currently generating about -0.1 per unit of risk. If you would invest  603.00  in Shandong Hongchuang Aluminum on October 6, 2024 and sell it today you would earn a total of  294.00  from holding Shandong Hongchuang Aluminum or generate 48.76% return on investment over 90 days.

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

Shandong Hongchuang Aluminum  vs.  Niutech Environment Technology

Shandong Hongchuang

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hongchuang Aluminum are ranked lower than 16 (%) 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.

Niutech Environment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Niutech Environment Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shandong Hongchuang and Niutech Environment

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

The idea behind Shandong Hongchuang Aluminum and Niutech Environment 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.