Correlation Between Shandong Mining and Huatian Hotel

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

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

Diversification Opportunities for Shandong Mining and Huatian Hotel

0.63

Correlation Coefficient

Shandong Mining  Huatian Hotel

Poor diversification

The 3 months correlation between Shandong and Huatian is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and Huatian Hotel Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huatian Hotel Group and Shandong Mining 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 Mining Machinery are associated (or correlated) with Huatian Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huatian Hotel Group has no effect on the direction of Shandong Mining i.e., Shandong Mining and Huatian Hotel go up and down completely randomly.

Pair Corralation between Shandong Mining and Huatian Hotel

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to under-perform the Huatian Hotel. In addition to that, Shandong Mining is 1.87 times more volatile than Huatian Hotel Group. It trades about -0.23 of its total potential returns per unit of risk. Huatian Hotel Group is currently generating about -0.09 per unit of volatility. If you would invest  354.00  in Huatian Hotel Group on October 5, 2024 and sell it today you would lose (24.00) from holding Huatian Hotel Group or give up 6.78% of portfolio value over 90 days.

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

Shandong Mining Machinery  vs.  Huatian Hotel Group

Shandong Mining Machinery

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 7 (%) 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.

Huatian Hotel Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huatian Hotel Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Huatian Hotel 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 Mining and Huatian Hotel

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

The idea behind Shandong Mining Machinery and Huatian Hotel Group 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.