Correlation Between Hainan Mining and Shenzhen Bingchuan

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

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

Diversification Opportunities for Hainan Mining and Shenzhen Bingchuan

0.69

Correlation Coefficient

Hainan Mining  Shenzhen Bingchuan

Poor diversification

The 3 months correlation between Hainan and Shenzhen is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Mining Co and Shenzhen Bingchuan Network in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Bingchuan and Hainan Mining 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 Hainan Mining Co are associated (or correlated) with Shenzhen Bingchuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Bingchuan has no effect on the direction of Hainan Mining i.e., Hainan Mining and Shenzhen Bingchuan go up and down completely randomly.

Pair Corralation between Hainan Mining and Shenzhen Bingchuan

Assuming the 90 days trading horizon Hainan Mining Co is expected to generate 0.57 times more return on investment than Shenzhen Bingchuan. However, Hainan Mining Co is 1.75 times less risky than Shenzhen Bingchuan. It trades about -0.15 of its potential returns per unit of risk. Shenzhen Bingchuan Network is currently generating about -0.29 per unit of risk. If you would invest  728.00  in Hainan Mining Co on October 10, 2024 and sell it today you would lose (53.00) from holding Hainan Mining Co or give up 7.28% of portfolio value over 90 days.

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

Hainan Mining Co  vs.  Shenzhen Bingchuan Network

Hainan Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hainan Mining Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hainan Mining is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shenzhen Bingchuan

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Bingchuan Network are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Bingchuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hainan Mining and Shenzhen Bingchuan

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

The idea behind Hainan Mining Co and Shenzhen Bingchuan Network 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.