Correlation Between Hainan Mining and Shanghai Action

Can any of the company-specific risk be diversified away by investing in both Hainan Mining and Shanghai Action 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 Shanghai Action 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 Shanghai Action Education, you can compare the effects of market volatilities on Hainan Mining and Shanghai Action 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 Shanghai Action. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hainan Mining and Shanghai Action.

Diversification Opportunities for Hainan Mining and Shanghai Action

-0.32

Correlation Coefficient

Hainan Mining  Shanghai Action

Very good diversification

The 3 months correlation between Hainan and Shanghai is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Mining Co and Shanghai Action Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Action Education 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 Shanghai Action. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Action Education has no effect on the direction of Hainan Mining i.e., Hainan Mining and Shanghai Action go up and down completely randomly.

Pair Corralation between Hainan Mining and Shanghai Action

Assuming the 90 days trading horizon Hainan Mining is expected to generate 1.9 times less return on investment than Shanghai Action. But when comparing it to its historical volatility, Hainan Mining Co is 1.67 times less risky than Shanghai Action. It trades about 0.12 of its potential returns per unit of risk. Shanghai Action Education is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,694  in Shanghai Action Education on December 1, 2024 and sell it today you would earn a total of  206.00  from holding Shanghai Action Education or generate 5.58% return on investment over 90 days.

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

Hainan Mining Co  vs.  Shanghai Action Education

Hainan Mining

Risk-Adjusted Performance

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 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.

Shanghai Action Education

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Action Education are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Action may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Hainan Mining and Shanghai Action

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

The idea behind Hainan Mining Co and Shanghai Action Education 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.