Correlation Between Shandong Mining and Guangzhou Restaurants

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

Diversification Opportunities for Shandong Mining and Guangzhou Restaurants

-0.14

Correlation Coefficient

Shandong Mining  Guangzhou Restaurants

Good diversification

The 3 months correlation between Shandong and Guangzhou is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and Guangzhou Restaurants Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Restaurants 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 Guangzhou Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Restaurants has no effect on the direction of Shandong Mining i.e., Shandong Mining and Guangzhou Restaurants go up and down completely randomly.

Pair Corralation between Shandong Mining and Guangzhou Restaurants

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to generate 3.05 times more return on investment than Guangzhou Restaurants. However, Shandong Mining is 3.05 times more volatile than Guangzhou Restaurants Group. It trades about 0.09 of its potential returns per unit of risk. Guangzhou Restaurants Group is currently generating about -0.03 per unit of risk. If you would invest  372.00  in Shandong Mining Machinery on December 27, 2024 and sell it today you would earn a total of  63.00  from holding Shandong Mining Machinery or generate 16.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Shandong Mining Machinery  vs.  Guangzhou Restaurants Group

Shandong Mining Machinery

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 6 (%) 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.

Guangzhou Restaurants

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Shandong Mining Machinery and Guangzhou Restaurants Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.