Correlation Between Shandong Mining and CITIC Securities

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

Diversification Opportunities for Shandong Mining and CITIC Securities

0.79

Correlation Coefficient

Shandong Mining  CITIC Securities

Poor diversification

The 3 months correlation between Shandong and CITIC is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and CITIC Securities Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC Securities 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 Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC Securities has no effect on the direction of Shandong Mining i.e., Shandong Mining and CITIC Securities go up and down completely randomly.

Pair Corralation between Shandong Mining and CITIC Securities

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to generate 1.14 times more return on investment than CITIC Securities. However, Shandong Mining is 1.14 times more volatile than CITIC Securities Co. It trades about 0.32 of its potential returns per unit of risk. CITIC Securities Co is currently generating about 0.25 per unit of risk. If you would invest  213.00  in Shandong Mining Machinery on September 5, 2024 and sell it today you would earn a total of  223.00  from holding Shandong Mining Machinery or generate 104.69% return on investment over 90 days.

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

Shandong Mining Machinery  vs.  CITIC Securities Co

Shandong Mining Machinery

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 25 (%) 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 Securities

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC Securities Co are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, CITIC Securities sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Mining and CITIC Securities

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

The idea behind Shandong Mining Machinery and CITIC Securities 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 Transaction History module to view history of all your transactions and understand their impact on performance.