Correlation Between Shandong Mining and GuoChuang Software

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

Diversification Opportunities for Shandong Mining and GuoChuang Software

0.95

Correlation Coefficient

Shandong Mining  GuoChuang Software

Almost no diversification

The 3 months correlation between Shandong and GuoChuang is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and GuoChuang Software Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GuoChuang Software 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 GuoChuang Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GuoChuang Software has no effect on the direction of Shandong Mining i.e., Shandong Mining and GuoChuang Software go up and down completely randomly.

Pair Corralation between Shandong Mining and GuoChuang Software

Assuming the 90 days trading horizon Shandong Mining is expected to generate 1.48 times less return on investment than GuoChuang Software. But when comparing it to its historical volatility, Shandong Mining Machinery is 1.61 times less risky than GuoChuang Software. It trades about 0.22 of its potential returns per unit of risk. GuoChuang Software Co is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,393  in GuoChuang Software Co on August 31, 2024 and sell it today you would earn a total of  1,112  from holding GuoChuang Software Co or generate 79.83% return on investment over 90 days.

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

Shandong Mining Machinery  vs.  GuoChuang Software Co

Shandong Mining Machinery

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 17 (%) 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.

GuoChuang Software

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GuoChuang Software Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, GuoChuang Software sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Mining and GuoChuang Software

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

The idea behind Shandong Mining Machinery and GuoChuang Software Co 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.