Correlation Between Shandong Gold and Liuzhou Iron

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

Diversification Opportunities for Shandong Gold and Liuzhou Iron

0.28

Correlation Coefficient

Shandong Gold  Liuzhou Iron

Modest diversification

The 3 months correlation between Shandong and Liuzhou is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Gold Mining and Liuzhou Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liuzhou Iron Steel 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 Liuzhou Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liuzhou Iron Steel has no effect on the direction of Shandong Gold i.e., Shandong Gold and Liuzhou Iron go up and down completely randomly.

Pair Corralation between Shandong Gold and Liuzhou Iron

Assuming the 90 days trading horizon Shandong Gold Mining is expected to generate 0.9 times more return on investment than Liuzhou Iron. However, Shandong Gold Mining is 1.11 times less risky than Liuzhou Iron. It trades about 0.12 of its potential returns per unit of risk. Liuzhou Iron Steel is currently generating about 0.11 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	Very Weak
Accuracy	98.28%
Values	Daily Returns

Shandong Gold Mining  vs.  Liuzhou Iron Steel

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.

Liuzhou Iron Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liuzhou Iron Steel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liuzhou Iron sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Gold and Liuzhou Iron

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

The idea behind Shandong Gold Mining and Liuzhou Iron Steel 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.