Correlation Between Shandong Gold and Xiamen Wanli

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

Diversification Opportunities for Shandong Gold and Xiamen Wanli

0.24

Correlation Coefficient

Shandong Gold  Xiamen Wanli

Modest diversification

The 3 months correlation between Shandong and Xiamen is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Gold Mining and Xiamen Wanli Stone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Wanli Stone 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 Xiamen Wanli. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Wanli Stone has no effect on the direction of Shandong Gold i.e., Shandong Gold and Xiamen Wanli go up and down completely randomly.

Pair Corralation between Shandong Gold and Xiamen Wanli

Assuming the 90 days trading horizon Shandong Gold is expected to generate 5.37 times less return on investment than Xiamen Wanli. But when comparing it to its historical volatility, Shandong Gold Mining is 1.39 times less risky than Xiamen Wanli. It trades about 0.01 of its potential returns per unit of risk. Xiamen Wanli Stone is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,155  in Xiamen Wanli Stone on October 22, 2024 and sell it today you would earn a total of  1,195  from holding Xiamen Wanli Stone or generate 55.45% return on investment over 90 days.

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

Shandong Gold Mining  vs.  Xiamen Wanli Stone

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Xiamen Wanli Stone

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen Wanli Stone are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xiamen Wanli may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shandong Gold and Xiamen Wanli

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

The idea behind Shandong Gold Mining and Xiamen Wanli Stone 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.