Correlation Between Shandong Mining and Chahua Modern

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

Diversification Opportunities for Shandong Mining and Chahua Modern

0.42

Correlation Coefficient

Shandong Mining  Chahua Modern

Very weak diversification

The 3 months correlation between Shandong and Chahua is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and Chahua Modern Housewares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chahua Modern Housewares 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 Chahua Modern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chahua Modern Housewares has no effect on the direction of Shandong Mining i.e., Shandong Mining and Chahua Modern go up and down completely randomly.

Pair Corralation between Shandong Mining and Chahua Modern

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to under-perform the Chahua Modern. In addition to that, Shandong Mining is 1.84 times more volatile than Chahua Modern Housewares. It trades about -0.23 of its total potential returns per unit of risk. Chahua Modern Housewares is currently generating about 0.12 per unit of volatility. If you would invest  2,165  in Chahua Modern Housewares on October 5, 2024 and sell it today you would earn a total of  154.00  from holding Chahua Modern Housewares or generate 7.11% return on investment over 90 days.

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

Shandong Mining Machinery  vs.  Chahua Modern Housewares

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.

Chahua Modern Housewares

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chahua Modern Housewares are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chahua Modern sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Mining and Chahua Modern

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

The idea behind Shandong Mining Machinery and Chahua Modern Housewares 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.