Correlation Between Shandong Mining and Ningbo Thermal

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

Diversification Opportunities for Shandong Mining and Ningbo Thermal

0.29

Correlation Coefficient

Shandong Mining  Ningbo Thermal

Modest diversification

The 3 months correlation between Shandong and Ningbo is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and Ningbo Thermal Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Thermal Power 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 Ningbo Thermal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Thermal Power has no effect on the direction of Shandong Mining i.e., Shandong Mining and Ningbo Thermal go up and down completely randomly.

Pair Corralation between Shandong Mining and Ningbo Thermal

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to generate 2.03 times more return on investment than Ningbo Thermal. However, Shandong Mining is 2.03 times more volatile than Ningbo Thermal Power. It trades about 0.11 of its potential returns per unit of risk. Ningbo Thermal Power is currently generating about 0.05 per unit of risk. If you would invest  349.00  in Shandong Mining Machinery on December 2, 2024 and sell it today you would earn a total of  55.00  from holding Shandong Mining Machinery or generate 15.76% return on investment over 90 days.

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

Shandong Mining Machinery  vs.  Ningbo Thermal Power

Shandong Mining Machinery

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Mining may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Ningbo Thermal Power

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Thermal Power are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Thermal may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Shandong Mining and Ningbo Thermal

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

The idea behind Shandong Mining Machinery and Ningbo Thermal Power 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.