Correlation Between China Asset and Shandong Hongchuang

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

By analyzing existing cross correlation between China Asset Management and Shandong Hongchuang Aluminum, you can compare the effects of market volatilities on China Asset and Shandong Hongchuang 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 China Asset with a short position of Shandong Hongchuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Asset and Shandong Hongchuang.

Diversification Opportunities for China Asset and Shandong Hongchuang

0.26

Correlation Coefficient

China Asset  Shandong Hongchuang

Modest diversification

The 3 months correlation between China and Shandong is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding China Asset Management and Shandong Hongchuang Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Hongchuang and China Asset 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 China Asset Management are associated (or correlated) with Shandong Hongchuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Hongchuang has no effect on the direction of China Asset i.e., China Asset and Shandong Hongchuang go up and down completely randomly.

Pair Corralation between China Asset and Shandong Hongchuang

Assuming the 90 days trading horizon China Asset is expected to generate 4.24 times less return on investment than Shandong Hongchuang. But when comparing it to its historical volatility, China Asset Management is 2.29 times less risky than Shandong Hongchuang. It trades about 0.14 of its potential returns per unit of risk. Shandong Hongchuang Aluminum is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,004  in Shandong Hongchuang Aluminum on December 26, 2024 and sell it today you would earn a total of  142.00  from holding Shandong Hongchuang Aluminum or generate 14.14% return on investment over 90 days.

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

China Asset Management  vs.  Shandong Hongchuang Aluminum

China Asset Management

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Asset Management are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Asset may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Shandong Hongchuang

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hongchuang Aluminum are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Hongchuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Asset and Shandong Hongchuang

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

The idea behind China Asset Management and Shandong Hongchuang Aluminum 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.