Correlation Between Tongling Nonferrous and Sichuan Fulin

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

By analyzing existing cross correlation between Tongling Nonferrous Metals and Sichuan Fulin Transportation, you can compare the effects of market volatilities on Tongling Nonferrous and Sichuan Fulin 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 Tongling Nonferrous with a short position of Sichuan Fulin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tongling Nonferrous and Sichuan Fulin.

Diversification Opportunities for Tongling Nonferrous and Sichuan Fulin

0.63

Correlation Coefficient

Tongling Nonferrous  Sichuan Fulin

Poor diversification

The 3 months correlation between Tongling and Sichuan is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Tongling Nonferrous Metals and Sichuan Fulin Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Fulin Transp and Tongling Nonferrous 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 Tongling Nonferrous Metals are associated (or correlated) with Sichuan Fulin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Fulin Transp has no effect on the direction of Tongling Nonferrous i.e., Tongling Nonferrous and Sichuan Fulin go up and down completely randomly.

Pair Corralation between Tongling Nonferrous and Sichuan Fulin

Assuming the 90 days trading horizon Tongling Nonferrous is expected to generate 2.98 times less return on investment than Sichuan Fulin. But when comparing it to its historical volatility, Tongling Nonferrous Metals is 1.03 times less risky than Sichuan Fulin. It trades about 0.07 of its potential returns per unit of risk. Sichuan Fulin Transportation is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  520.00  in Sichuan Fulin Transportation on September 3, 2024 and sell it today you would earn a total of  183.00  from holding Sichuan Fulin Transportation or generate 35.19% return on investment over 90 days.

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

Tongling Nonferrous Metals  vs.  Sichuan Fulin Transportation

Tongling Nonferrous

Risk-Adjusted Performance

5 of 100

Modest

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

Sichuan Fulin Transp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Fulin Transportation are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Fulin sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tongling Nonferrous and Sichuan Fulin

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

The idea behind Tongling Nonferrous Metals and Sichuan Fulin Transportation 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.