Correlation Between ADAMA and China Yangtze

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

By analyzing existing cross correlation between ADAMA and China Yangtze Power, you can compare the effects of market volatilities on ADAMA and China Yangtze 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 ADAMA with a short position of China Yangtze. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADAMA and China Yangtze.

Diversification Opportunities for ADAMA and China Yangtze

0.1

Correlation Coefficient

ADAMA  China Yangtze

Average diversification

The 3 months correlation between ADAMA and China is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding ADAMA and China Yangtze Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Yangtze Power and ADAMA 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 ADAMA are associated (or correlated) with China Yangtze. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Yangtze Power has no effect on the direction of ADAMA i.e., ADAMA and China Yangtze go up and down completely randomly.

Pair Corralation between ADAMA and China Yangtze

Assuming the 90 days trading horizon ADAMA is expected to under-perform the China Yangtze. In addition to that, ADAMA is 3.51 times more volatile than China Yangtze Power. It trades about -0.06 of its total potential returns per unit of risk. China Yangtze Power is currently generating about -0.01 per unit of volatility. If you would invest  2,761  in China Yangtze Power on December 1, 2024 and sell it today you would lose (23.00) from holding China Yangtze Power or give up 0.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

ADAMA  vs.  China Yangtze Power

ADAMA

Risk-Adjusted Performance

Very Weak

Over the last 90 days ADAMA 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.

China Yangtze Power

Risk-Adjusted Performance

Very Weak

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

Pair Trading with ADAMA and China Yangtze

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

The idea behind ADAMA and China Yangtze Power 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.