Correlation Between Gansu Jiu and Shandong

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

By analyzing existing cross correlation between Gansu Jiu Steel and Shandong Hi Speed RoadBridge, you can compare the effects of market volatilities on Gansu Jiu and Shandong 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 Gansu Jiu with a short position of Shandong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gansu Jiu and Shandong.

Diversification Opportunities for Gansu Jiu and Shandong

0.77

Correlation Coefficient

Gansu Jiu  Shandong

Poor diversification

The 3 months correlation between Gansu and Shandong is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Jiu Steel and Shandong Hi Speed RoadBridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Hi Speed and Gansu Jiu 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 Gansu Jiu Steel are associated (or correlated) with Shandong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Hi Speed has no effect on the direction of Gansu Jiu i.e., Gansu Jiu and Shandong go up and down completely randomly.

Pair Corralation between Gansu Jiu and Shandong

Assuming the 90 days trading horizon Gansu Jiu Steel is expected to under-perform the Shandong. In addition to that, Gansu Jiu is 1.55 times more volatile than Shandong Hi Speed RoadBridge. It trades about -0.22 of its total potential returns per unit of risk. Shandong Hi Speed RoadBridge is currently generating about -0.27 per unit of volatility. If you would invest  677.00  in Shandong Hi Speed RoadBridge on October 9, 2024 and sell it today you would lose (107.00) from holding Shandong Hi Speed RoadBridge or give up 15.81% of portfolio value over 90 days.

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

Gansu Jiu Steel  vs.  Shandong Hi Speed RoadBridge

Gansu Jiu Steel

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Jiu Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gansu Jiu may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Shandong Hi Speed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shandong Hi Speed RoadBridge has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shandong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gansu Jiu and Shandong

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

The idea behind Gansu Jiu Steel and Shandong Hi Speed RoadBridge 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.