Correlation Between Industrial and Shan Dong

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

By analyzing existing cross correlation between Industrial and Commercial and Shan Dong Dong E, you can compare the effects of market volatilities on Industrial and Shan Dong 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 Industrial with a short position of Shan Dong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial and Shan Dong.

Diversification Opportunities for Industrial and Shan Dong

0.76

Correlation Coefficient

Industrial  Shan Dong

Poor diversification

The 3 months correlation between Industrial and Shan is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Shan Dong Dong E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shan Dong Dong and Industrial 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 Industrial and Commercial are associated (or correlated) with Shan Dong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shan Dong Dong has no effect on the direction of Industrial i.e., Industrial and Shan Dong go up and down completely randomly.

Pair Corralation between Industrial and Shan Dong

Assuming the 90 days trading horizon Industrial is expected to generate 1.73 times less return on investment than Shan Dong. But when comparing it to its historical volatility, Industrial and Commercial is 1.15 times less risky than Shan Dong. It trades about 0.08 of its potential returns per unit of risk. Shan Dong Dong E is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5,966  in Shan Dong Dong E on October 15, 2024 and sell it today you would earn a total of  229.00  from holding Shan Dong Dong E or generate 3.84% return on investment over 90 days.

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

Industrial and Commercial  vs.  Shan Dong Dong E

Industrial and Commercial

Risk-Adjusted Performance

7 of 100

OK

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

Shan Dong Dong

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shan Dong Dong E are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shan Dong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Industrial and Shan Dong

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

The idea behind Industrial and Commercial and Shan Dong Dong E 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.