Correlation Between Shandong Mining and Aerospace

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

Diversification Opportunities for Shandong Mining and Aerospace

0.22

Correlation Coefficient

Shandong Mining  Aerospace

Modest diversification

The 3 months correlation between Shandong and Aerospace is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and Aerospace Hi Tech Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerospace Hi Tech 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 Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerospace Hi Tech has no effect on the direction of Shandong Mining i.e., Shandong Mining and Aerospace go up and down completely randomly.

Pair Corralation between Shandong Mining and Aerospace

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to under-perform the Aerospace. In addition to that, Shandong Mining is 2.99 times more volatile than Aerospace Hi Tech Holding. It trades about -0.23 of its total potential returns per unit of risk. Aerospace Hi Tech Holding is currently generating about -0.31 per unit of volatility. If you would invest  1,215  in Aerospace Hi Tech Holding on October 5, 2024 and sell it today you would lose (150.00) from holding Aerospace Hi Tech Holding or give up 12.35% of portfolio value over 90 days.

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

Shandong Mining Machinery  vs.  Aerospace Hi Tech Holding

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.

Aerospace Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aerospace Hi Tech Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Shandong Mining and Aerospace

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

The idea behind Shandong Mining Machinery and Aerospace Hi Tech Holding 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.