Correlation Between Shandong Homey and Mengtian Home

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

By analyzing existing cross correlation between Shandong Homey Aquatic and Mengtian Home Group, you can compare the effects of market volatilities on Shandong Homey and Mengtian Home 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 Homey with a short position of Mengtian Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Homey and Mengtian Home.

Diversification Opportunities for Shandong Homey and Mengtian Home

0.5

Correlation Coefficient

Shandong Homey  Mengtian Home

Very weak diversification

The 3 months correlation between Shandong and Mengtian is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Homey Aquatic and Mengtian Home Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mengtian Home Group and Shandong Homey 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 Homey Aquatic are associated (or correlated) with Mengtian Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mengtian Home Group has no effect on the direction of Shandong Homey i.e., Shandong Homey and Mengtian Home go up and down completely randomly.

Pair Corralation between Shandong Homey and Mengtian Home

Assuming the 90 days trading horizon Shandong Homey Aquatic is expected to under-perform the Mengtian Home. But the stock apears to be less risky and, when comparing its historical volatility, Shandong Homey Aquatic is 1.13 times less risky than Mengtian Home. The stock trades about -0.03 of its potential returns per unit of risk. The Mengtian Home Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,081  in Mengtian Home Group on November 28, 2024 and sell it today you would earn a total of  138.00  from holding Mengtian Home Group or generate 12.77% return on investment over 90 days.

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

Shandong Homey Aquatic  vs.  Mengtian Home Group

Shandong Homey Aquatic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shandong Homey Aquatic 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.

Mengtian Home Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mengtian Home Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mengtian Home sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Homey and Mengtian Home

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

The idea behind Shandong Homey Aquatic and Mengtian Home Group 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.