Correlation Between Anhui Jianghuai and Shandong Iron

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

By analyzing existing cross correlation between Anhui Jianghuai Automobile and Shandong Iron and, you can compare the effects of market volatilities on Anhui Jianghuai and Shandong Iron 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 Anhui Jianghuai with a short position of Shandong Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anhui Jianghuai and Shandong Iron.

Diversification Opportunities for Anhui Jianghuai and Shandong Iron

0.85

Correlation Coefficient

Anhui Jianghuai  Shandong Iron

Very poor diversification

The 3 months correlation between Anhui and Shandong is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Jianghuai Automobile and Shandong Iron and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Iron and Anhui Jianghuai 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 Anhui Jianghuai Automobile are associated (or correlated) with Shandong Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Iron has no effect on the direction of Anhui Jianghuai i.e., Anhui Jianghuai and Shandong Iron go up and down completely randomly.

Pair Corralation between Anhui Jianghuai and Shandong Iron

Assuming the 90 days trading horizon Anhui Jianghuai Automobile is expected to generate 1.46 times more return on investment than Shandong Iron. However, Anhui Jianghuai is 1.46 times more volatile than Shandong Iron and. It trades about 0.25 of its potential returns per unit of risk. Shandong Iron and is currently generating about 0.2 per unit of risk. If you would invest  2,164  in Anhui Jianghuai Automobile on September 14, 2024 and sell it today you would earn a total of  1,766  from holding Anhui Jianghuai Automobile or generate 81.61% return on investment over 90 days.

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

Anhui Jianghuai Automobile  vs.  Shandong Iron and

Anhui Jianghuai Auto

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Jianghuai Automobile are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Jianghuai sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Anhui Jianghuai and Shandong Iron

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

The idea behind Anhui Jianghuai Automobile and Shandong Iron and 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.