Correlation Between Shandong Gold and Zhejiang Zhengguang

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

Diversification Opportunities for Shandong Gold and Zhejiang Zhengguang

0.11

Correlation Coefficient

Shandong Gold  Zhejiang Zhengguang

Average diversification

The 3 months correlation between Shandong and Zhejiang is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Gold Mining and Zhejiang Zhengguang Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Zhengguang 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 Zhejiang Zhengguang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Zhengguang has no effect on the direction of Shandong Gold i.e., Shandong Gold and Zhejiang Zhengguang go up and down completely randomly.

Pair Corralation between Shandong Gold and Zhejiang Zhengguang

Assuming the 90 days trading horizon Shandong Gold Mining is expected to generate 1.14 times more return on investment than Zhejiang Zhengguang. However, Shandong Gold is 1.14 times more volatile than Zhejiang Zhengguang Industrial. It trades about 0.12 of its potential returns per unit of risk. Zhejiang Zhengguang Industrial is currently generating about 0.1 per unit of risk. If you would invest  2,311  in Shandong Gold Mining on December 26, 2024 and sell it today you would earn a total of  307.00  from holding Shandong Gold Mining or generate 13.28% return on investment over 90 days.

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

Shandong Gold Mining  vs.  Zhejiang Zhengguang Industrial

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 9 (%) 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.

Zhejiang Zhengguang

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Zhengguang Industrial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Zhengguang may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Shandong Gold and Zhejiang Zhengguang

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

The idea behind Shandong Gold Mining and Zhejiang Zhengguang Industrial 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.