Correlation Between Shandong Iron and Shenzhen Shenbao

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

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

Diversification Opportunities for Shandong Iron and Shenzhen Shenbao

0.8

Correlation Coefficient

Shandong Iron  Shenzhen Shenbao

Very poor diversification

The 3 months correlation between Shandong and Shenzhen is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Iron and and Shenzhen Shenbao Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Shenbao Ind and Shandong 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 Shandong Iron and are associated (or correlated) with Shenzhen Shenbao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Shenbao Ind has no effect on the direction of Shandong Iron i.e., Shandong Iron and Shenzhen Shenbao go up and down completely randomly.

Pair Corralation between Shandong Iron and Shenzhen Shenbao

Assuming the 90 days trading horizon Shandong Iron and is expected to under-perform the Shenzhen Shenbao. In addition to that, Shandong Iron is 1.36 times more volatile than Shenzhen Shenbao Industrial. It trades about -0.08 of its total potential returns per unit of risk. Shenzhen Shenbao Industrial is currently generating about -0.05 per unit of volatility. If you would invest  684.00  in Shenzhen Shenbao Industrial on December 27, 2024 and sell it today you would lose (23.00) from holding Shenzhen Shenbao Industrial or give up 3.36% of portfolio value over 90 days.

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

Shandong Iron and  vs.  Shenzhen Shenbao Industrial

Shandong Iron

Risk-Adjusted Performance

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shenzhen Shenbao Ind

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Shandong Iron and and Shenzhen Shenbao Industrial 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.