Correlation Between Longjian Road and Shengda Mining

Can any of the company-specific risk be diversified away by investing in both Longjian Road and Shengda 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 Longjian Road and Shengda Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Longjian Road Bridge and Shengda Mining Co, you can compare the effects of market volatilities on Longjian Road and Shengda 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 Longjian Road with a short position of Shengda Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Longjian Road and Shengda Mining.

Diversification Opportunities for Longjian Road and Shengda Mining

-0.26

Correlation Coefficient

Longjian Road  Shengda Mining

Very good diversification

The 3 months correlation between Longjian and Shengda is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Longjian Road Bridge and Shengda Mining Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shengda Mining and Longjian Road 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 Longjian Road Bridge are associated (or correlated) with Shengda Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shengda Mining has no effect on the direction of Longjian Road i.e., Longjian Road and Shengda Mining go up and down completely randomly.

Pair Corralation between Longjian Road and Shengda Mining

Assuming the 90 days trading horizon Longjian Road Bridge is expected to under-perform the Shengda Mining. In addition to that, Longjian Road is 1.93 times more volatile than Shengda Mining Co. It trades about -0.04 of its total potential returns per unit of risk. Shengda Mining Co is currently generating about 0.02 per unit of volatility. If you would invest  1,294  in Shengda Mining Co on December 2, 2024 and sell it today you would earn a total of  14.00  from holding Shengda Mining Co or generate 1.08% return on investment over 90 days.

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

Longjian Road Bridge  vs.  Shengda Mining Co

Longjian Road Bridge

Risk-Adjusted Performance

Very Weak

Over the last 90 days Longjian Road Bridge 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.

Shengda Mining

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shengda Mining Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shengda Mining is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Longjian Road and Shengda Mining

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

The idea behind Longjian Road Bridge and Shengda Mining Co 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.