Correlation Between Baoshan Iron and Shandong Iron

Can any of the company-specific risk be diversified away by investing in both Baoshan Iron 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 Baoshan Iron and Shandong Iron 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 Shandong Iron and, you can compare the effects of market volatilities on Baoshan Iron 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 Baoshan Iron with a short position of Shandong Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baoshan Iron and Shandong Iron.

Diversification Opportunities for Baoshan Iron and Shandong Iron

0.5

Correlation Coefficient

Baoshan Iron  Shandong Iron

Very weak diversification

The 3 months correlation between Baoshan and Shandong is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Baoshan Iron Steel and Shandong Iron and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Iron 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 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 Baoshan Iron i.e., Baoshan Iron and Shandong Iron go up and down completely randomly.

Pair Corralation between Baoshan Iron and Shandong Iron

Assuming the 90 days trading horizon Baoshan Iron Steel is expected to generate 0.56 times more return on investment than Shandong Iron. However, Baoshan Iron Steel is 1.8 times less risky than Shandong Iron. It trades about 0.06 of its potential returns per unit of risk. Shandong Iron and is currently generating about -0.13 per unit of risk. If you would invest  682.00  in Baoshan Iron Steel on October 4, 2024 and sell it today you would earn a total of  10.00  from holding Baoshan Iron Steel or generate 1.47% return on investment over 90 days.

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

Baoshan Iron Steel  vs.  Shandong Iron and

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.

Shandong Iron

Risk-Adjusted Performance

0 of 100

Very Weak

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

The main advantage of trading using opposite Baoshan Iron and Shandong Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baoshan Iron 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 Baoshan Iron Steel 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.