Correlation Between Shandong Gold and GEM

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

Diversification Opportunities for Shandong Gold and GEM

0.35

Correlation Coefficient

Shandong Gold  GEM

Weak diversification

The 3 months correlation between Shandong and GEM is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Gold Mining and GEM Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEM Co 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 GEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEM Co has no effect on the direction of Shandong Gold i.e., Shandong Gold and GEM go up and down completely randomly.

Pair Corralation between Shandong Gold and GEM

Assuming the 90 days trading horizon Shandong Gold Mining is expected to under-perform the GEM. But the stock apears to be less risky and, when comparing its historical volatility, Shandong Gold Mining is 1.32 times less risky than GEM. The stock trades about -0.11 of its potential returns per unit of risk. The GEM Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  658.00  in GEM Co on October 15, 2024 and sell it today you would lose (19.00) from holding GEM Co or give up 2.89% of portfolio value over 90 days.

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

Shandong Gold Mining  vs.  GEM Co

Shandong Gold Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shandong Gold Mining 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.

GEM Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GEM Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GEM 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 GEM

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

The idea behind Shandong Gold Mining and GEM 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.