Correlation Between Shandong Mining and Shanghai Rongtai

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

Diversification Opportunities for Shandong Mining and Shanghai Rongtai

0.77

Correlation Coefficient

Shandong Mining  Shanghai Rongtai

Poor diversification

The 3 months correlation between Shandong and Shanghai is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and Shanghai Rongtai Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Rongtai Health 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 Shanghai Rongtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Rongtai Health has no effect on the direction of Shandong Mining i.e., Shandong Mining and Shanghai Rongtai go up and down completely randomly.

Pair Corralation between Shandong Mining and Shanghai Rongtai

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to generate 2.17 times more return on investment than Shanghai Rongtai. However, Shandong Mining is 2.17 times more volatile than Shanghai Rongtai Health. It trades about 0.1 of its potential returns per unit of risk. Shanghai Rongtai Health is currently generating about -0.03 per unit of risk. If you would invest  274.00  in Shandong Mining Machinery on October 5, 2024 and sell it today you would earn a total of  75.00  from holding Shandong Mining Machinery or generate 27.37% 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.  Shanghai Rongtai Health

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.

Shanghai Rongtai Health

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Shandong Mining Machinery and Shanghai Rongtai Health 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.