Correlation Between Shandong Mining and Ningbo Fujia

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

Diversification Opportunities for Shandong Mining and Ningbo Fujia

0.64

Correlation Coefficient

Shandong Mining  Ningbo Fujia

Poor diversification

The 3 months correlation between Shandong and Ningbo is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and Ningbo Fujia Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Fujia Industrial 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 Fujia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Fujia Industrial has no effect on the direction of Shandong Mining i.e., Shandong Mining and Ningbo Fujia go up and down completely randomly.

Pair Corralation between Shandong Mining and Ningbo Fujia

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to under-perform the Ningbo Fujia. In addition to that, Shandong Mining is 1.1 times more volatile than Ningbo Fujia Industrial. It trades about -0.06 of its total potential returns per unit of risk. Ningbo Fujia Industrial is currently generating about 0.09 per unit of volatility. If you would invest  1,433  in Ningbo Fujia Industrial on October 20, 2024 and sell it today you would earn a total of  88.00  from holding Ningbo Fujia Industrial or generate 6.14% 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.  Ningbo Fujia Industrial

Shandong Mining Machinery

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 12 (%) 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.

Ningbo Fujia Industrial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Fujia Industrial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Fujia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Mining and Ningbo Fujia

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

The idea behind Shandong Mining Machinery and Ningbo Fujia Industrial 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.