Correlation Between Shandong Iron and Guangdong Liantai

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

Diversification Opportunities for Shandong Iron and Guangdong Liantai

0.83

Correlation Coefficient

Shandong Iron  Guangdong Liantai

Very poor diversification

The 3 months correlation between Shandong and Guangdong is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Iron and and Guangdong Liantai Environmenta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Liantai 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 Guangdong Liantai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Liantai has no effect on the direction of Shandong Iron i.e., Shandong Iron and Guangdong Liantai go up and down completely randomly.

Pair Corralation between Shandong Iron and Guangdong Liantai

Assuming the 90 days trading horizon Shandong Iron and is expected to under-perform the Guangdong Liantai. In addition to that, Shandong Iron is 1.15 times more volatile than Guangdong Liantai Environmental. It trades about -0.04 of its total potential returns per unit of risk. Guangdong Liantai Environmental is currently generating about -0.02 per unit of volatility. If you would invest  403.00  in Guangdong Liantai Environmental on October 8, 2024 and sell it today you would lose (23.00) from holding Guangdong Liantai Environmental or give up 5.71% 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.  Guangdong Liantai Environmenta

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 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.

Guangdong Liantai

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Liantai Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangdong Liantai 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 Guangdong Liantai

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

The idea behind Shandong Iron and and Guangdong Liantai Environmental 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.