Correlation Between Gansu Jiu and Shandong Mining

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

Diversification Opportunities for Gansu Jiu and Shandong Mining

0.4

Correlation Coefficient

Gansu Jiu  Shandong Mining

Very weak diversification

The 3 months correlation between Gansu and Shandong is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Jiu Steel and Shandong Mining Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Mining Machinery 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 Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Mining Machinery has no effect on the direction of Gansu Jiu i.e., Gansu Jiu and Shandong Mining go up and down completely randomly.

Pair Corralation between Gansu Jiu and Shandong Mining

Assuming the 90 days trading horizon Gansu Jiu Steel is expected to under-perform the Shandong Mining. But the stock apears to be less risky and, when comparing its historical volatility, Gansu Jiu Steel is 2.55 times less risky than Shandong Mining. The stock trades about -0.11 of its potential returns per unit of risk. The Shandong Mining Machinery is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  396.00  in Shandong Mining Machinery on December 2, 2024 and sell it today you would earn a total of  8.00  from holding Shandong Mining Machinery or generate 2.02% return on investment over 90 days.

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

Gansu Jiu Steel  vs.  Shandong Mining Machinery

Gansu Jiu Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gansu Jiu Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shandong Mining Machinery

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Mining may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Gansu Jiu and Shandong Mining

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

The idea behind Gansu Jiu Steel and Shandong Mining Machinery 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.