Correlation Between Daoming OpticsChemical and Shandong Iron

Can any of the company-specific risk be diversified away by investing in both Daoming OpticsChemical and Shandong Iron 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 Daoming OpticsChemical and Shandong Iron into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Daoming OpticsChemical Co and Shandong Iron and, you can compare the effects of market volatilities on Daoming OpticsChemical and Shandong Iron 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 Daoming OpticsChemical with a short position of Shandong Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daoming OpticsChemical and Shandong Iron.

Diversification Opportunities for Daoming OpticsChemical and Shandong Iron

0.88

Correlation Coefficient

Daoming OpticsChemical  Shandong Iron

Very poor diversification

The 3 months correlation between Daoming and Shandong is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Daoming OpticsChemical Co and Shandong Iron and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Iron and Daoming OpticsChemical 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 Daoming OpticsChemical Co are associated (or correlated) with Shandong Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Iron has no effect on the direction of Daoming OpticsChemical i.e., Daoming OpticsChemical and Shandong Iron go up and down completely randomly.

Pair Corralation between Daoming OpticsChemical and Shandong Iron

Assuming the 90 days trading horizon Daoming OpticsChemical is expected to generate 1.08 times less return on investment than Shandong Iron. But when comparing it to its historical volatility, Daoming OpticsChemical Co is 1.01 times less risky than Shandong Iron. It trades about 0.2 of its potential returns per unit of risk. Shandong Iron and is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  122.00  in Shandong Iron and on September 13, 2024 and sell it today you would earn a total of  50.00  from holding Shandong Iron and or generate 40.98% return on investment over 90 days.

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

Daoming OpticsChemical Co  vs.  Shandong Iron and

Daoming OpticsChemical

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Daoming OpticsChemical Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Daoming OpticsChemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Iron

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Iron and are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Iron sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daoming OpticsChemical and Shandong Iron

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

The idea behind Daoming OpticsChemical Co and Shandong Iron and 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 Stocks Directory module to find actively traded stocks across global markets.