Correlation Between Shandong Mining and NBTM New

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

Diversification Opportunities for Shandong Mining and NBTM New

-0.02

Correlation Coefficient

Shandong Mining  NBTM New

Good diversification

The 3 months correlation between Shandong and NBTM is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and NBTM New Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBTM New Materials 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 NBTM New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBTM New Materials has no effect on the direction of Shandong Mining i.e., Shandong Mining and NBTM New go up and down completely randomly.

Pair Corralation between Shandong Mining and NBTM New

Assuming the 90 days trading horizon Shandong Mining is expected to generate 1.22 times less return on investment than NBTM New. But when comparing it to its historical volatility, Shandong Mining Machinery is 1.09 times less risky than NBTM New. It trades about 0.04 of its potential returns per unit of risk. NBTM New Materials is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  931.00  in NBTM New Materials on October 5, 2024 and sell it today you would earn a total of  634.00  from holding NBTM New Materials or generate 68.1% return on investment over 90 days.

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

Shandong Mining Machinery  vs.  NBTM New Materials

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.

NBTM New Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NBTM New Materials 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 NBTM New

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

The idea behind Shandong Mining Machinery and NBTM New Materials 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.