Correlation Between Industrial and Shandong

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

Diversification Opportunities for Industrial and Shandong

0.77

Correlation Coefficient

Industrial  Shandong

Poor diversification

The 3 months correlation between Industrial and Shandong is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Shandong Hi Speed RoadBridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Hi Speed 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 Shandong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Hi Speed has no effect on the direction of Industrial i.e., Industrial and Shandong go up and down completely randomly.

Pair Corralation between Industrial and Shandong

Assuming the 90 days trading horizon Industrial is expected to generate 1.98 times less return on investment than Shandong. But when comparing it to its historical volatility, Industrial and Commercial is 1.88 times less risky than Shandong. It trades about 0.18 of its potential returns per unit of risk. Shandong Hi Speed RoadBridge is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  478.00  in Shandong Hi Speed RoadBridge on September 12, 2024 and sell it today you would earn a total of  155.00  from holding Shandong Hi Speed RoadBridge or generate 32.43% 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.  Shandong Hi Speed RoadBridge

Industrial and Commercial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Hi Speed

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hi Speed RoadBridge are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrial and Shandong

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

The idea behind Industrial and Commercial and Shandong Hi Speed RoadBridge 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.