Correlation Between Baoshan Iron and Qingdao Gon

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

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

Diversification Opportunities for Baoshan Iron and Qingdao Gon

0.61

Correlation Coefficient

Baoshan Iron  Qingdao Gon

Poor diversification

The 3 months correlation between Baoshan and Qingdao is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Baoshan Iron Steel and Qingdao Gon Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qingdao Gon Technology and Baoshan Iron 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 Baoshan Iron Steel are associated (or correlated) with Qingdao Gon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qingdao Gon Technology has no effect on the direction of Baoshan Iron i.e., Baoshan Iron and Qingdao Gon go up and down completely randomly.

Pair Corralation between Baoshan Iron and Qingdao Gon

Assuming the 90 days trading horizon Baoshan Iron Steel is expected to generate 0.96 times more return on investment than Qingdao Gon. However, Baoshan Iron Steel is 1.05 times less risky than Qingdao Gon. It trades about -0.01 of its potential returns per unit of risk. Qingdao Gon Technology is currently generating about -0.03 per unit of risk. If you would invest  703.00  in Baoshan Iron Steel on October 6, 2024 and sell it today you would lose (15.00) from holding Baoshan Iron Steel or give up 2.13% of portfolio value over 90 days.

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

Baoshan Iron Steel  vs.  Qingdao Gon Technology

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.

Qingdao Gon Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Qingdao Gon Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Qingdao Gon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Baoshan Iron and Qingdao Gon

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

The idea behind Baoshan Iron Steel and Qingdao Gon 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.