Correlation Between Shandong Longquan and Baoshan Iron

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

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

Diversification Opportunities for Shandong Longquan and Baoshan Iron

0.25

Correlation Coefficient

Shandong Longquan  Baoshan Iron

Modest diversification

The 3 months correlation between Shandong and Baoshan is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Longquan Pipeline and Baoshan Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baoshan Iron Steel and Shandong Longquan 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 Longquan Pipeline are associated (or correlated) with Baoshan Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baoshan Iron Steel has no effect on the direction of Shandong Longquan i.e., Shandong Longquan and Baoshan Iron go up and down completely randomly.

Pair Corralation between Shandong Longquan and Baoshan Iron

Assuming the 90 days trading horizon Shandong Longquan Pipeline is expected to under-perform the Baoshan Iron. In addition to that, Shandong Longquan is 1.52 times more volatile than Baoshan Iron Steel. It trades about -0.23 of its total potential returns per unit of risk. Baoshan Iron Steel is currently generating about -0.08 per unit of volatility. If you would invest  691.00  in Baoshan Iron Steel on October 11, 2024 and sell it today you would lose (19.00) from holding Baoshan Iron Steel or give up 2.75% of portfolio value over 90 days.

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

Shandong Longquan Pipeline  vs.  Baoshan Iron Steel

Shandong Longquan

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Longquan Pipeline are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Longquan sustained solid returns over the last few months and may actually be approaching a breakup point.

Baoshan Iron Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baoshan Iron Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Baoshan Iron 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 Longquan and Baoshan Iron

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

The idea behind Shandong Longquan Pipeline and Baoshan Iron Steel 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.