Correlation Between Shandong Gold and Huaibei Mining

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

Diversification Opportunities for Shandong Gold and Huaibei Mining

-0.02

Correlation Coefficient

Shandong Gold  Huaibei Mining

Good diversification

The 3 months correlation between Shandong and Huaibei is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Gold Mining and Huaibei Mining Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaibei Mining Holdings 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 Huaibei Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaibei Mining Holdings has no effect on the direction of Shandong Gold i.e., Shandong Gold and Huaibei Mining go up and down completely randomly.

Pair Corralation between Shandong Gold and Huaibei Mining

Assuming the 90 days trading horizon Shandong Gold Mining is expected to under-perform the Huaibei Mining. In addition to that, Shandong Gold is 1.52 times more volatile than Huaibei Mining Holdings. It trades about -0.39 of its total potential returns per unit of risk. Huaibei Mining Holdings is currently generating about -0.06 per unit of volatility. If you would invest  1,372  in Huaibei Mining Holdings on December 4, 2024 and sell it today you would lose (14.00) from holding Huaibei Mining Holdings or give up 1.02% of portfolio value over 90 days.

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

Shandong Gold Mining  vs.  Huaibei Mining Holdings

Shandong Gold Mining

Risk-Adjusted Performance

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 somewhat strong basic indicators, Shandong Gold is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Huaibei Mining Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Huaibei Mining Holdings 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.

Pair Trading with Shandong Gold and Huaibei Mining

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

The idea behind Shandong Gold Mining and Huaibei Mining Holdings 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.