Correlation Between China Life and Shandong Mining

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Can any of the company-specific risk be diversified away by investing in both China Life and Shandong 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 China Life and Shandong Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Life Insurance and Shandong Mining Machinery, you can compare the effects of market volatilities on China Life and Shandong 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 China Life with a short position of Shandong Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Life and Shandong Mining.

Diversification Opportunities for China Life and Shandong Mining

-0.09
  Correlation Coefficient

Good diversification

The 3 months correlation between China and Shandong is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Shandong Mining Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Mining Machinery and China Life 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 China Life Insurance are associated (or correlated) with Shandong Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Mining Machinery has no effect on the direction of China Life i.e., China Life and Shandong Mining go up and down completely randomly.

Pair Corralation between China Life and Shandong Mining

Assuming the 90 days trading horizon China Life Insurance is expected to generate 0.35 times more return on investment than Shandong Mining. However, China Life Insurance is 2.83 times less risky than Shandong Mining. It trades about -0.14 of its potential returns per unit of risk. Shandong Mining Machinery is currently generating about -0.23 per unit of risk. If you would invest  4,250  in China Life Insurance on October 5, 2024 and sell it today you would lose (268.00) from holding China Life Insurance or give up 6.31% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

China Life Insurance  vs.  Shandong Mining Machinery

 Performance 
       Timeline  
China Life Insurance 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days China Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.
Shandong Mining Machinery 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

China Life and Shandong Mining Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Life and Shandong Mining

The main advantage of trading using opposite China Life and Shandong Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Life position performs unexpectedly, Shandong 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 Shandong Mining will offset losses from the drop in Shandong Mining's long position.
The idea behind China Life Insurance and Shandong Mining Machinery 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 CEOs Directory module to screen CEOs from public companies around the world.

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