Correlation Between Sichuan Teway and Shandong Gold

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

By analyzing existing cross correlation between Sichuan Teway Food and Shandong Gold Mining, you can compare the effects of market volatilities on Sichuan Teway and Shandong Gold 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 Sichuan Teway with a short position of Shandong Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Teway and Shandong Gold.

Diversification Opportunities for Sichuan Teway and Shandong Gold

0.03

Correlation Coefficient

Sichuan Teway  Shandong Gold

Significant diversification

The 3 months correlation between Sichuan and Shandong is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Teway Food and Shandong Gold Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Gold Mining and Sichuan Teway 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 Sichuan Teway Food are associated (or correlated) with Shandong Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Gold Mining has no effect on the direction of Sichuan Teway i.e., Sichuan Teway and Shandong Gold go up and down completely randomly.

Pair Corralation between Sichuan Teway and Shandong Gold

Assuming the 90 days trading horizon Sichuan Teway Food is expected to generate 1.78 times more return on investment than Shandong Gold. However, Sichuan Teway is 1.78 times more volatile than Shandong Gold Mining. It trades about -0.01 of its potential returns per unit of risk. Shandong Gold Mining is currently generating about -0.2 per unit of risk. If you would invest  1,387  in Sichuan Teway Food on October 23, 2024 and sell it today you would lose (47.00) from holding Sichuan Teway Food or give up 3.39% of portfolio value over 90 days.

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

Sichuan Teway Food  vs.  Shandong Gold Mining

Sichuan Teway Food

Risk-Adjusted Performance

0 of 100

Weak

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

Shandong Gold Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shandong Gold Mining 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.

Pair Trading with Sichuan Teway and Shandong Gold

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

The idea behind Sichuan Teway Food and Shandong Gold Mining 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.