Correlation Between Shandong Iron and CNOOC

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

Diversification Opportunities for Shandong Iron and CNOOC

-0.08

Correlation Coefficient

Shandong Iron  CNOOC

Good diversification

The 3 months correlation between Shandong and CNOOC is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Iron and and CNOOC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNOOC Limited 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 CNOOC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNOOC Limited has no effect on the direction of Shandong Iron i.e., Shandong Iron and CNOOC go up and down completely randomly.

Pair Corralation between Shandong Iron and CNOOC

Assuming the 90 days trading horizon Shandong Iron and is expected to under-perform the CNOOC. In addition to that, Shandong Iron is 1.56 times more volatile than CNOOC Limited. It trades about -0.09 of its total potential returns per unit of risk. CNOOC Limited is currently generating about -0.09 per unit of volatility. If you would invest  2,749  in CNOOC Limited on December 4, 2024 and sell it today you would lose (194.00) from holding CNOOC Limited or give up 7.06% of portfolio value over 90 days.

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

Shandong Iron and  vs.  CNOOC Limited

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.

CNOOC Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days CNOOC Limited 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.

Pair Trading with Shandong Iron and CNOOC

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

The idea behind Shandong Iron and and CNOOC Limited 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.