Correlation Between Shandong Mining and Sinocat Environmental

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

Diversification Opportunities for Shandong Mining and Sinocat Environmental

0.74

Correlation Coefficient

Shandong Mining  Sinocat Environmental

Poor diversification

The 3 months correlation between Shandong and Sinocat is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and Sinocat Environmental Technolo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinocat Environmental 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 Sinocat Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinocat Environmental has no effect on the direction of Shandong Mining i.e., Shandong Mining and Sinocat Environmental go up and down completely randomly.

Pair Corralation between Shandong Mining and Sinocat Environmental

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to generate 1.37 times more return on investment than Sinocat Environmental. However, Shandong Mining is 1.37 times more volatile than Sinocat Environmental Technology. It trades about 0.16 of its potential returns per unit of risk. Sinocat Environmental Technology is currently generating about 0.05 per unit of risk. If you would invest  256.00  in Shandong Mining Machinery on October 20, 2024 and sell it today you would earn a total of  141.00  from holding Shandong Mining Machinery or generate 55.08% 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.  Sinocat Environmental Technolo

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.

Sinocat Environmental

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sinocat Environmental Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinocat Environmental may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shandong Mining and Sinocat Environmental

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

The idea behind Shandong Mining Machinery and Sinocat Environmental Technology 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.