Correlation Between Shandong Mining and CITIC Guoan

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

Diversification Opportunities for Shandong Mining and CITIC Guoan

0.53

Correlation Coefficient

Shandong Mining  CITIC Guoan

Very weak diversification

The 3 months correlation between Shandong and CITIC is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and CITIC Guoan Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC Guoan Information 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 CITIC Guoan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC Guoan Information has no effect on the direction of Shandong Mining i.e., Shandong Mining and CITIC Guoan go up and down completely randomly.

Pair Corralation between Shandong Mining and CITIC Guoan

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to generate 1.32 times more return on investment than CITIC Guoan. However, Shandong Mining is 1.32 times more volatile than CITIC Guoan Information. It trades about 0.1 of its potential returns per unit of risk. CITIC Guoan Information is currently generating about 0.02 per unit of risk. If you would invest  274.00  in Shandong Mining Machinery on October 4, 2024 and sell it today you would earn a total of  75.00  from holding Shandong Mining Machinery or generate 27.37% return on investment over 90 days.

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

Shandong Mining Machinery  vs.  CITIC Guoan Information

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.

CITIC Guoan Information

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC Guoan Information are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, CITIC Guoan may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shandong Mining and CITIC Guoan

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

The idea behind Shandong Mining Machinery and CITIC Guoan Information 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.