Correlation Between Shandong Iron and Hang Xiao

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

Diversification Opportunities for Shandong Iron and Hang Xiao

0.98

Correlation Coefficient

Shandong Iron  Hang Xiao

Almost no diversification

The 3 months correlation between Shandong and Hang is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Iron and and Hang Xiao Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hang Xiao Steel 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 Hang Xiao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hang Xiao Steel has no effect on the direction of Shandong Iron i.e., Shandong Iron and Hang Xiao go up and down completely randomly.

Pair Corralation between Shandong Iron and Hang Xiao

Assuming the 90 days trading horizon Shandong Iron is expected to generate 1.08 times less return on investment than Hang Xiao. In addition to that, Shandong Iron is 1.02 times more volatile than Hang Xiao Steel. It trades about 0.2 of its total potential returns per unit of risk. Hang Xiao Steel is currently generating about 0.22 per unit of volatility. If you would invest  214.00  in Hang Xiao Steel on September 14, 2024 and sell it today you would earn a total of  90.00  from holding Hang Xiao Steel or generate 42.06% return on investment over 90 days.

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

Shandong Iron and  vs.  Hang Xiao Steel

Shandong Iron

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Iron and are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Iron sustained solid returns over the last few months and may actually be approaching a breakup point.

Hang Xiao Steel

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hang Xiao Steel are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hang Xiao sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Iron and Hang Xiao

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

The idea behind Shandong Iron and and Hang Xiao Steel 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.