Correlation Between Nanjing Putian and Shandong Mining

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

By analyzing existing cross correlation between Nanjing Putian Telecommunications and Shandong Mining Machinery, you can compare the effects of market volatilities on Nanjing Putian and Shandong Mining 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 Nanjing Putian with a short position of Shandong Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nanjing Putian and Shandong Mining.

Diversification Opportunities for Nanjing Putian and Shandong Mining

0.81

Correlation Coefficient

Nanjing Putian  Shandong Mining

Very poor diversification

The 3 months correlation between Nanjing and Shandong is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Nanjing Putian Telecommunicati and Shandong Mining Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Mining Machinery and Nanjing Putian 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 Nanjing Putian Telecommunications are associated (or correlated) with Shandong Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Mining Machinery has no effect on the direction of Nanjing Putian i.e., Nanjing Putian and Shandong Mining go up and down completely randomly.

Pair Corralation between Nanjing Putian and Shandong Mining

Assuming the 90 days trading horizon Nanjing Putian Telecommunications is expected to generate 1.0 times more return on investment than Shandong Mining. However, Nanjing Putian Telecommunications is 1.0 times less risky than Shandong Mining. It trades about 0.38 of its potential returns per unit of risk. Shandong Mining Machinery is currently generating about 0.32 per unit of risk. If you would invest  194.00  in Nanjing Putian Telecommunications on September 5, 2024 and sell it today you would earn a total of  265.00  from holding Nanjing Putian Telecommunications or generate 136.6% return on investment over 90 days.

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

Nanjing Putian Telecommunicati  vs.  Shandong Mining Machinery

Nanjing Putian Telec

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Nanjing Putian Telecommunications are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanjing Putian sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Mining Machinery

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 25 (%) 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.

Pair Trading with Nanjing Putian and Shandong Mining

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

The idea behind Nanjing Putian Telecommunications and Shandong Mining Machinery 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.