Correlation Between Shandong Gold and Lier Chemical

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

By analyzing existing cross correlation between Shandong Gold Mining and Lier Chemical Co, you can compare the effects of market volatilities on Shandong Gold and Lier Chemical 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 Gold with a short position of Lier Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Gold and Lier Chemical.

Diversification Opportunities for Shandong Gold and Lier Chemical

0.47

Correlation Coefficient

Shandong Gold  Lier Chemical

Very weak diversification

The 3 months correlation between Shandong and Lier is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Gold Mining and Lier Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lier Chemical and Shandong Gold 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 Gold Mining are associated (or correlated) with Lier Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lier Chemical has no effect on the direction of Shandong Gold i.e., Shandong Gold and Lier Chemical go up and down completely randomly.

Pair Corralation between Shandong Gold and Lier Chemical

Assuming the 90 days trading horizon Shandong Gold Mining is expected to generate 1.37 times more return on investment than Lier Chemical. However, Shandong Gold is 1.37 times more volatile than Lier Chemical Co. It trades about 0.14 of its potential returns per unit of risk. Lier Chemical Co is currently generating about 0.07 per unit of risk. If you would invest  2,297  in Shandong Gold Mining on December 30, 2024 and sell it today you would earn a total of  363.00  from holding Shandong Gold Mining or generate 15.8% return on investment over 90 days.

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

Shandong Gold Mining  vs.  Lier Chemical Co

Shandong Gold Mining

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Gold Mining are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Gold sustained solid returns over the last few months and may actually be approaching a breakup point.

Lier Chemical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lier Chemical Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lier Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shandong Gold and Lier Chemical

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

The idea behind Shandong Gold Mining and Lier Chemical Co 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.