Correlation Between China Nonferrous and Sichuan Fulin

Can any of the company-specific risk be diversified away by investing in both China 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 China 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 China Nonferrous Metal and Sichuan Fulin Transportation, you can compare the effects of market volatilities on China 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 China Nonferrous with a short position of Sichuan Fulin. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Nonferrous and Sichuan Fulin.

Diversification Opportunities for China Nonferrous and Sichuan Fulin

0.31

Correlation Coefficient

China Nonferrous  Sichuan Fulin

Weak diversification

The 3 months correlation between China and Sichuan is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding China Nonferrous Metal 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 China 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 China Nonferrous Metal 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 China Nonferrous i.e., China Nonferrous and Sichuan Fulin go up and down completely randomly.

Pair Corralation between China Nonferrous and Sichuan Fulin

Assuming the 90 days trading horizon China Nonferrous Metal is expected to under-perform the Sichuan Fulin. But the stock apears to be less risky and, when comparing its historical volatility, China Nonferrous Metal is 2.09 times less risky than Sichuan Fulin. The stock trades about -0.26 of its potential returns per unit of risk. The Sichuan Fulin Transportation is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  713.00  in Sichuan Fulin Transportation on October 5, 2024 and sell it today you would lose (27.00) from holding Sichuan Fulin Transportation or give up 3.79% of portfolio value over 90 days.

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

China Nonferrous Metal  vs.  Sichuan Fulin Transportation

China Nonferrous Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Nonferrous Metal 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.

Sichuan Fulin Transp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Fulin Transportation are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Fulin may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Nonferrous and Sichuan Fulin

The main advantage of trading using opposite China Nonferrous and Sichuan Fulin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China 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 China Nonferrous Metal 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.

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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.