Correlation Between Shandong Mining and Zhejiang Juhua

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

Diversification Opportunities for Shandong Mining and Zhejiang Juhua

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between Shandong and Zhejiang is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Mining Machinery and Zhejiang Juhua Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Juhua and Shandong 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 Shandong Mining Machinery are associated (or correlated) with Zhejiang Juhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Juhua has no effect on the direction of Shandong Mining i.e., Shandong Mining and Zhejiang Juhua go up and down completely randomly.

Pair Corralation between Shandong Mining and Zhejiang Juhua

Assuming the 90 days trading horizon Shandong Mining Machinery is expected to generate 2.98 times more return on investment than Zhejiang Juhua. However, Shandong Mining is 2.98 times more volatile than Zhejiang Juhua Co. It trades about 0.4 of its potential returns per unit of risk. Zhejiang Juhua Co is currently generating about 0.02 per unit of risk. If you would invest  294.00  in Shandong Mining Machinery on September 13, 2024 and sell it today you would earn a total of  214.00  from holding Shandong Mining Machinery or generate 72.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Shandong Mining Machinery  vs.  Zhejiang Juhua Co

 Performance 
       Timeline  
Shandong Mining Machinery 

Risk-Adjusted Performance

26 of 100

 
Weak
 
Strong
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 26 (%) 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.
Zhejiang Juhua 

Risk-Adjusted Performance

17 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Juhua Co are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Juhua sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Mining and Zhejiang Juhua Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Shandong Mining and Zhejiang Juhua

The main advantage of trading using opposite Shandong Mining and Zhejiang Juhua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shandong Mining position performs unexpectedly, Zhejiang Juhua 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 Zhejiang Juhua will offset losses from the drop in Zhejiang Juhua's long position.
The idea behind Shandong Mining Machinery and Zhejiang Juhua Co 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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