Correlation Between Shandong Mining and Mengtian Home

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

Diversification Opportunities for Shandong Mining and Mengtian Home

0.6

Correlation Coefficient

Shandong Mining  Mengtian Home

Poor diversification

The 3 months correlation between Shandong and Mengtian is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and Mengtian Home Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mengtian Home Group 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 Mengtian Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mengtian Home Group has no effect on the direction of Shandong Mining i.e., Shandong Mining and Mengtian Home go up and down completely randomly.

Pair Corralation between Shandong Mining and Mengtian Home

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to under-perform the Mengtian Home. But the stock apears to be less risky and, when comparing its historical volatility, Shandong Mining Machinery is 1.25 times less risky than Mengtian Home. The stock trades about -0.51 of its potential returns per unit of risk. The Mengtian Home Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,093  in Mengtian Home Group on October 9, 2024 and sell it today you would lose (17.00) from holding Mengtian Home Group or give up 1.56% of portfolio value over 90 days.

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

Shandong Mining Machinery  vs.  Mengtian Home Group

Shandong Mining Machinery

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 8 (%) 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.

Mengtian Home Group

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mengtian Home Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mengtian Home may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shandong Mining and Mengtian Home

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

The idea behind Shandong Mining Machinery and Mengtian Home 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.