Correlation Between Gansu Mogao and Shandong Longquan

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

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

Diversification Opportunities for Gansu Mogao and Shandong Longquan

0.73

Correlation Coefficient

Gansu Mogao  Shandong Longquan

Poor diversification

The 3 months correlation between Gansu and Shandong is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Mogao Industrial and Shandong Longquan Pipeline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Longquan and Gansu Mogao 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 Mogao Industrial are associated (or correlated) with Shandong Longquan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Longquan has no effect on the direction of Gansu Mogao i.e., Gansu Mogao and Shandong Longquan go up and down completely randomly.

Pair Corralation between Gansu Mogao and Shandong Longquan

Assuming the 90 days trading horizon Gansu Mogao Industrial is expected to generate 1.56 times more return on investment than Shandong Longquan. However, Gansu Mogao is 1.56 times more volatile than Shandong Longquan Pipeline. It trades about 0.03 of its potential returns per unit of risk. Shandong Longquan Pipeline is currently generating about 0.02 per unit of risk. If you would invest  467.00  in Gansu Mogao Industrial on December 25, 2024 and sell it today you would earn a total of  9.00  from holding Gansu Mogao Industrial or generate 1.93% return on investment over 90 days.

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

Gansu Mogao Industrial  vs.  Shandong Longquan Pipeline

Gansu Mogao Industrial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Mogao Industrial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Gansu Mogao is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shandong Longquan

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Longquan Pipeline are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shandong Longquan 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 Mogao and Shandong Longquan

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

The idea behind Gansu Mogao Industrial and Shandong Longquan Pipeline 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.