Correlation Between China Nonferrous and Pengxin International

Can any of the company-specific risk be diversified away by investing in both China Nonferrous and Pengxin International 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 Pengxin International 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 Pengxin International Mining, you can compare the effects of market volatilities on China Nonferrous and Pengxin International 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 Pengxin International. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Nonferrous and Pengxin International.

Diversification Opportunities for China Nonferrous and Pengxin International

0.6

Correlation Coefficient

China Nonferrous  Pengxin International

Poor diversification

The 3 months correlation between China and Pengxin is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding China Nonferrous Metal and Pengxin International Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pengxin International 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 Pengxin International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pengxin International has no effect on the direction of China Nonferrous i.e., China Nonferrous and Pengxin International go up and down completely randomly.

Pair Corralation between China Nonferrous and Pengxin International

Assuming the 90 days trading horizon China Nonferrous Metal is expected to under-perform the Pengxin International. But the stock apears to be less risky and, when comparing its historical volatility, China Nonferrous Metal is 3.39 times less risky than Pengxin International. The stock trades about -0.01 of its potential returns per unit of risk. The Pengxin International Mining is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  315.00  in Pengxin International Mining on September 28, 2024 and sell it today you would earn a total of  77.00  from holding Pengxin International Mining or generate 24.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

China Nonferrous Metal  vs.  Pengxin International Mining

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 somewhat strong basic indicators, China Nonferrous is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pengxin International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pengxin International Mining are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pengxin International sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Nonferrous and Pengxin International

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

The idea behind China Nonferrous Metal and Pengxin International 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.

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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.