Correlation Between Yunnan Aluminium and Lier Chemical

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

By analyzing existing cross correlation between Yunnan Aluminium Co and Lier Chemical Co, you can compare the effects of market volatilities on Yunnan Aluminium and Lier Chemical 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 Yunnan Aluminium with a short position of Lier Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yunnan Aluminium and Lier Chemical.

Diversification Opportunities for Yunnan Aluminium and Lier Chemical

-0.25

Correlation Coefficient

Yunnan Aluminium  Lier Chemical

Very good diversification

The 3 months correlation between Yunnan and Lier is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Yunnan Aluminium Co and Lier Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lier Chemical and Yunnan Aluminium 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 Yunnan Aluminium Co are associated (or correlated) with Lier Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lier Chemical has no effect on the direction of Yunnan Aluminium i.e., Yunnan Aluminium and Lier Chemical go up and down completely randomly.

Pair Corralation between Yunnan Aluminium and Lier Chemical

Assuming the 90 days trading horizon Yunnan Aluminium Co is expected to generate 1.13 times more return on investment than Lier Chemical. However, Yunnan Aluminium is 1.13 times more volatile than Lier Chemical Co. It trades about 0.19 of its potential returns per unit of risk. Lier Chemical Co is currently generating about -0.08 per unit of risk. If you would invest  1,422  in Yunnan Aluminium Co on October 22, 2024 and sell it today you would earn a total of  254.00  from holding Yunnan Aluminium Co or generate 17.86% return on investment over 90 days.

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

Yunnan Aluminium Co  vs.  Lier Chemical Co

Yunnan Aluminium

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yunnan Aluminium Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yunnan Aluminium sustained solid returns over the last few months and may actually be approaching a breakup point.

Lier Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lier Chemical Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lier Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Yunnan Aluminium and Lier Chemical

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

The idea behind Yunnan Aluminium Co and Lier Chemical 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.