Correlation Between Shandong Mining and YLZ Information

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

Diversification Opportunities for Shandong Mining and YLZ Information

0.56

Correlation Coefficient

Shandong Mining  YLZ Information

Very weak diversification

The 3 months correlation between Shandong and YLZ is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and YLZ Information Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YLZ Information 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 YLZ Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YLZ Information Tech has no effect on the direction of Shandong Mining i.e., Shandong Mining and YLZ Information go up and down completely randomly.

Pair Corralation between Shandong Mining and YLZ Information

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to generate 1.59 times more return on investment than YLZ Information. However, Shandong Mining is 1.59 times more volatile than YLZ Information Tech. It trades about 0.11 of its potential returns per unit of risk. YLZ Information Tech is currently generating about 0.14 per unit of risk. If you would invest  375.00  in Shandong Mining Machinery on December 3, 2024 and sell it today you would earn a total of  29.00  from holding Shandong Mining Machinery or generate 7.73% 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.  YLZ Information Tech

Shandong Mining Machinery

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shandong Mining Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shandong Mining is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

YLZ Information Tech

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Shandong Mining Machinery and YLZ Information Tech 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.