Correlation Between Shandong Gold and Hainan Haiqi

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

Diversification Opportunities for Shandong Gold and Hainan Haiqi

0.29

Correlation Coefficient

Shandong Gold  Hainan Haiqi

Modest diversification

The 3 months correlation between Shandong and Hainan is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Gold Mining and Hainan Haiqi Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Haiqi Transpo 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 Hainan Haiqi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Haiqi Transpo has no effect on the direction of Shandong Gold i.e., Shandong Gold and Hainan Haiqi go up and down completely randomly.

Pair Corralation between Shandong Gold and Hainan Haiqi

Assuming the 90 days trading horizon Shandong Gold Mining is expected to generate 0.81 times more return on investment than Hainan Haiqi. However, Shandong Gold Mining is 1.24 times less risky than Hainan Haiqi. It trades about 0.12 of its potential returns per unit of risk. Hainan Haiqi Transportation is currently generating about 0.01 per unit of risk. If you would invest  2,307  in Shandong Gold Mining on December 25, 2024 and sell it today you would earn a total of  311.00  from holding Shandong Gold Mining or generate 13.48% 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.  Hainan Haiqi Transportation

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.

Hainan Haiqi Transpo

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Shandong Gold Mining and Hainan Haiqi Transportation 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.